Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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Quick-service restaurant franchises are also expanding. Tose specializing in breakfast — Dunkin' Donuts, Starbucks, Huddle House, and others — are looking for space on drive-in end caps in smaller centers on the "going-to-work side of the road," says Tom Rohde III, CCIM, vice president of Rohde Ottmers Siegel Realty in San Antonio. Well-established QSRs such as McDonald's and Taco Bell are now working the San Antonio breakfast market as well. Rohde is preparing for what could be the biggest retail expansion in his market in decades, thanks largely to credit tenants. In addition to the infux of restaurants, Walmart has plans for 12 new supercenters and several compact Neighborhood Market stores, which could result in as many as two dozen new shopping centers, Rohde says. He adds that San Antonio-based grocer H-E-B, which operates more than 300 stores in Texas, is expected to compete with new openings as well. Tenant Changes It's no wonder brick-and-mortar shopping center owners are looking for stability. Online and nonstore retail sales jumped 11.6 percent from 2011 to 2012, according to the Commerce Department, more than double the average for all retail. Many of the tenants that are staples in community and neighborhood centers are now competing with the Internet, and some are losing that battle. "Owners are concerned about tenants selling widgets — whatever they might be," says Larry Hausman, CCIM, senior associate with Marcus & Millichap in Louisville, Ky. For example, RadioShack, one-product retailers such as GameStop, and Barnes & Noble have seen declining same-store sales and are expected to close hundreds of stores this year, according to USA Today. ATTRACTING MEDICAL TENANTS Healthcare service providers are quickly becoming fixtures in community and neighborhood shopping centers throughout the country. This makes sense for landlords, who like these tenants' creditworthiness and ability to generate traffic. But why are medical tenants drawn to these spaces? And how can shopping center owners entice them? Chad Pinnell, senior vice president of healthcare at Equity in Columbus, Ohio, and his colleague Bob Matias, senior vice president of retail at Equity, addressed these questions at the International Council of Shopping Centers' University of Shopping Centers in March in the course "How to Attract Medical Facilities to Your Shopping Center." "Healthcare providers are increasingly interested in patient experience," Pinnell explains. "Retail centers are easily accessible, easy to navigate, and conveniently located where people live — all of which add to a good experience." Plus, he adds, the traffic generated by shopping center anchors gives these medical tenants an advantage over the competition. Which centers these tenants choose largely depends on the type of services they provide. "For instance, a pediatric group might find it advantageous to locate at a grocery-anchored shopping center because that's where all the moms in town are showing up two times a week," Pinnell says. "Or a sports medicine practice may find a location near a large fitness center or sporting goods store to fit their market profile better." But challenges can arise during lease negotiations. "This is not because either party is unreasonable, but rather because they are speaking two different economic languages," Pinnell says. He recommends translating the retail lease terms in a healthcare lease to make them clearer to prospective tenants. And often, medical tenants seek lower rents and more-costly tenant improvements than traditional retail tenants. "Remember to weigh this against the benefit of having a long-term, stable tenant that is a good traffic generator," Pinnell adds. Pinnell likes to cite the example of Ohio State University's 30,000-sf CarePoint medical center, which is located in a Kroger grocery-anchored shopping center in Orange Township, Ohio. When CarePoint opened in November 2010, new families were rapidly moving into the surrounding area. And those families were shopping at Kroger. Within nine months the facility began to reach patient volume capacity, and expansion plans were made. "Two years prior, Ohio State's competitor had built a much larger facility about three miles away in a traditional medical office setting — a quarter-mile off the road in a quite serene setting with no traffic — and no retail," Pinnell says. "That facility continues to struggle." 28 May | June | 2013 Commercial Investment Real Estate