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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owners with above-average vacancy are enticing retailers by ofering lower rents than a single-tenant property." Free-standing properties generally command higher rents due to their relative visibility and ease of access, he adds. But these aren't triple-net leases in the strictest sense. In a shopping center, the landlord is responsible for the property's roof and structure as well as billing for common area maintenance, taxes, and insurance, Blankstein explains. Te property owner can also collect management and/or administration fees. "Tis trend, coupled with already reduced expansion plans, has created a limited [triplenet] development pipeline," Blankstein says. Space Jam? Even brick-and-mortar retailers that thrive despite the Internet's growing prominence will need less space in the coming years. As younger generations' buying power increases, Ahn expects to see more interactive showrooms for products that can be stored elsewhere and delivered the next day. "Te Apple Store model works with clothing, electronics, ofce supplies, furniture, and most nonperishable goods," he says. "It also allows for a higher number of stores in a small area. [Shopping center owners] can now provide double the amount of retailers in the same space." Will there be enough viable tenants to fll this excess space? Pappagallo points out that developers had to add more small-shop space to neighborhood and community centers before and during the recession to make projects pencil out. But during the last few years, there weren't enough sustainable businesses to prevent vacancies. Tus, an ideal tenant mix alone might not protect a shopping center from falling victim to the market cycle. "If a small center is anchored by a supermarket, for example, it's not who else is in there, but how much space," Pappagallo explains. "In that case, 20,000 to 30,000 sf of small-shop space allows for healthy business among the tenants." More space can lead to more vacancy. In some markets, to get deals done, "Landlords are now more willing to de-commission space," Lindsey says. For example, before 102,000 sf of shopping center space was delivered in Lindsey's market last year, a tenant that had signed on for 4,000 sf pulled out. Rather than holding out for a tenant who could fll that entire space, the landlord backflled 3,400 sf with Lindsey's client and de-commissioned the rest. "Te psf rent rate came down, allowing the tenant [which originally only wanted 2,400 sf] to take on the additional 1,000 sf," Lindsey says. Until the economy fully recovers, such measures may be necessary to make shopping centers viable. But it remains to be seen whether retail owners, investors, and developers have recalibrated enough to create centers that can withstand the market cycle's next fuctuation. In the meantime, we'll give them plenty of space to refect. Rich Rosfelder is associate editor of Commercial Investment Real Estate. RETAIL DEVELOPMENT in millions of sf 40 35 30 25 Construction Starts Deliveries 20 15 10 5 0 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 Source: CoStar 30 May | June | 2013 Commercial Investment Real Estate