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.
Issue link: http://cire.epubxp.com/i/504576
28 May | June | 2015 Commercial Investment Real Estate less carriers such as AT&T;, Verizon, and T-Mobile are continuing to grow. On the restaurant side, fast casual concepts have been thriving, along with renewed activity from QSRs including Hardee's, Dairy Queen, and Krystal. Specialty grocers such as Sprouts, Fresh Market, and Whole Foods also have been expanding. Two big challenges for many tenants are the lack of available qual- ity space and rising rents. Several years of limited new supply coming online coupled with continued expansion by both retail and restaurant tenants is creating a shortage of quality space. "We saw so little develop- ment through the great recession, other than build to suits, that robust demand is far outstripping the supply," says Shawn Massey, CCIM, CRW, CLS, a partner at the Shopping Center Group in Memphis. Back to the Future Although the current competitive market is starting to recall the frothy market of 2005–06, when a high level of expansion created intense competition for top retail real estate, today's market has a key distinction. A decade ago, if the right space didn't exist, some- one built it. Today, that is not the case, at least not yet. "I think we are going to see new projects coming out of the ground again in the next six months," says Dave Denton, CCIM, vice presi- dent of real estate brokerage at DAR Development in Grand Rapids, Mich. "But the dif cult part is the pricing dif erence between new construction and existing space that is good quality and in good locations." Buildings costs have increased in recent years, making new space more expensive. For example, top rates for existing retail space in Grand Rapid's main retail corridor are between $16 and $22 psf triple net. New construction in the same area would rent for $35 psf or higher. Some national retailers can pay those rents, but smaller shops and fran- chisees in this market just can't pay $35 or $45 psf and make money, Denton says. A second key dif erence in today's retail market is the sizable per- formance gap that exists between class A space and that of class B and C centers. Tenants are gravitating toward quality properties and locations, while secondary and tertiary retail corridors and B and C locations continue to struggle in many markets. "T ere are landlords that are still in tough situations with large vacancies, but that is not where the active retailers are going to look today," Denton says. Midwest Attracts Retailers Retailers and restaurants are accelerating store growth by expanding in existing markets and entering new markets. Lincoln, Neb., for example, landed on the radar for many national restaurant and Source: Reis U.S. Retail Vacancy and Rent Growth For neighborhood and community shopping centers 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0% 17.00 17.25 17.50 17.75 18.00 18.25 18.50 18.75 19.00 19.25 19.50 19.75 $20.00 0 5 0 5 0 5 . . . 11 . 7 . 0 7 . 5 8. 0 8 . 5 9 . 0 9. 5 10 1 0 11 11 Vacancy Asking rent Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Vacancy Asking rent