How to foresee your next big real estate project
Photo by Nicholas Upton
Picture your last trip to Las Vegas, looking down at the cityscape from your high-rise hotel room. In this strange, dreamlike oasis where empty lots abut massive hotel complexes and golf courses, it’s easy to see where the next wave of development will occur—usually a huge pile of sand guarded by chain link.
That determination is much more difficult in more traditional cities where retailers are tripping over each other to ink deals in the hottest parts of town.
With so many brands fighting for the same expensive, heavily trafficked retail sites, looking slightly off the beaten path is becoming a reality for many as construction of new suburban shopping and lifestyle centers remains well below historical averages. This scarcity of desirable retail locations is the new normal in most healthy U.S. cities.
So how do ‘zees and ‘zors identify quality sites without a commercial broker’s license? Take some advice from the pros on what to look for, regardless of whether it’s your hometown or an entirely new market.
CBRE, the world’s largest commercial real estate firm, reports the nation’s overall retail vacancy rate is now at its lowest point since the third quarter of 2008. Looking ahead, it appears this scarcity will only increase in the years ahead—and even Amazon’s retail-killing influence won’t break the fever.
“Retail sales appear to have picked up in the second quarter,” said Jeffrey Havsy, CBRE chief economist in the Americas. “We’re seeing the growth of omni-channel retailing continue to enhance the need for space in brick-and-mortar centers. Additionally, retailers are trying new concepts and continuing to experiment with different store formats, sizes and displays.”
Unlike most other cities, it’s easy to see where the next big developments will happen in Las Vegas. In more conventional places, real estate values can be found looking slightly off the beaten path and thinking like an urban planner.
Garrick Brown, vice president of retail research at Cushman & Wakefield—another leading national commercial real estate broker—of course suggests the use of a professional, but offered some advice to those looking to handle their own real estate search.
“You really need to do your homework on any location and find out not just what’s in that neighborhood, but find out what’s coming,” he said. That education process means following the local business journal, trade publications and any municipal or business news that provides a look at future developments or important new tenants that could re-energize a specific neighborhood or retail node.
“Don’t make the decision solely on rent,” Brown said, but added restaurants in particular need realistic sales estimates and should aim to keep rent costs at 15 percent or below.
“You start crossing that threshold and you’re going to start having trouble if commodities go up.”
As word of mouth is increasingly important to millennial consumers who are willing to travel to the ends of the Earth in search of a good Yelp review, creative marketing can lessen the importance of traffic counts.
He mentioned a number of retail and restaurants in hard-to-spot locations like an alley entrance or a second-floor location with no street frontage. Brown cited an extreme example in New York where a restaurant added a rear entrance while the building’s exterior was being renovated. Skillfully playing that up like an old speakeasy through social media, “his numbers started exploding” and the owner ended up keeping the front boarded up after the construction project wrapped up.
If he was riding in the back seat during a franchisee’s real estate search, Brown said he would point out residential activity, especially upgrades to existing buildings that point to gentrification or neighborhoods that are on the cusp of blowing up. Other key attributes include proximity to educational institutions, as well as cultural amenities and public transit, whether that’s busses or rail.
Aside from the scuttlebutt that’s available in business publications or the local newspaper’s business section, any real estate search should include a call to city hall or local development authorities that are privy to upcoming developments. In addition, as many established cities and first-ring suburbs are looking to redevelop older parcels, redevelopment assistance funds may be available to retailers looking to fit in with the city’s comprehensive plans outlining a city’s best-case vision for its future.
Going even deeper, many larger cities have urban development forums, and Skyscrapercity.com has sub-forums on many metro areas where rumors fly about future or upcoming development projects.
In the wake of several high-profile shopping center closures—especially as Macy’s shutters 68 stores with more to come from this and other department store and big-box brands—additional opportunities may be found as large flagship stores are divvied up into smaller pads.
Sears is another brand expected to close dozens of locations in the coming years, and many are being converted into multi-use projects with ground-level retail, and housing, hospitality and office space on higher floors. Given trends in large-format retail, even if a local Macy’s, Sears or JCPenney isn’t slated for closure, it may be worth watching or speaking with brokers or city officials to gauge their thoughts on a property’s future.
Some of these retailers are also being redeveloped as food halls— basically, large-scale food courts often featuring established and up-and-coming chefs. They are popping up in urban and suburban locations across the country, and have the ability to attract significant traffic.
“These things are exploding and there are 100 of them under development now,” Brown said. “You’re talking about the perfect location because when you get all these operators together in a dense urban marketplace, or even a dense suburban marketplace.”
With so much competition from the ever-growing roster of franchise brands, finding the best real estate means learning how to think like a broker and investigate to discover what hasn’t been widely reported by the media. In retail as in nature, the early bird still gets the worm.
Tom Kaiser, shown above left, is associate editor at Franchise Times, and writes this column about urban tales in franchising in each issue. Send story ideas to email@example.com.