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
30 May | June | 2015 Commercial Investment Real Estate result, some of the older and empty space is starting to be repur- posed. In Grand Rapids, for example, a vacant Barnes & Noble store was converted to a Dave & Buster's, while a long vacant Ruby Tues- day's was razed to make way for a Trader Joe's. Rents Move Higher Clearly, the pendulum is swinging back in favor of the landlord. "Our market has been very active," says Jorge Rodriguez, CCIM, director of central Florida retail at Colliers International in Orlando. T e Greater Orlando area was one of the f rst Florida markets to recover, in large part because of a record number of visitors to the region in the past few years. Last year, there were some 59 million visitors to Orlando. Second-generation restaurant space is almost non-existent. Boxes and junior boxes also have been very active in Orlando, and large spaces between 20,000 sf and 40,000 sf are extremely hard to f nd, Rodriguez says. T ose spaces where there are more options are of en located in "transitioning" markets where tenants are leaving the market for various reasons, such as a shif in the trade area or more competition from newer centers, he adds. As the supply of space shrinks, many landlords are of ering fewer tenant improvement dollars and pushing rents higher. During 2014, asking and ef ective rents for neighborhood and community centers increased a modest 1.8 percent and 2.0 percent respectively, roughly the rate of inf ation, according to Reis. However, rent increases vary depending on the conditions within specif c markets, trade areas, and individual properties. In hot markets such as Orlando, rents have climbed into the $40s psf for space in new developments, and Rodriguez is currently negotiating a lease for a national fast casual chain where the rent is nearly $50 psf on a newly built location. Even in 2006, during the competitive market prior to the recession, rents were only at about $40 psf, he adds. As supply of space shrinks, rents are trending higher, particularly for strong locations, agrees Massey in Memphis. "We are starting to see some of the highest rents ever quoted and actually signed in the Memphis market," he says. For example, Massey has done some deals that are north of $50 psf for new construction — the highest level he has ever seen in his 14-year career. "Our biggest obstacle with lack of supply is that landlords of the better properties are asking rents that are much higher than the mar- ket will bear out in the long term," Massey says. He doesn't think the high rents are sustainable over the long term for most tenants. "Many tenants will need to come back to renegotiate their rents to a level that aligns with sales," he says. Tenants are f nding that they need to be aggressive, move quickly, and even be willing to think outside the box to f nd space in today's competitive market. One option is to buy out another tenant's lease that is looking to close, or contacting a landlord about a space before it is vacant. Maybe that existing retailer is not healthy or is behind on rent, Rodriguez says. "T ere are ways to get creative in the market to try to get good spots," he says. Beth Mattson-Teig is a writer based in Minneapolis. Source: Reis U.S. Regional Mall Trends 7.0 7.5 8.0 8.5 9.0 9.5 10.0% 34 35 36 37 38 39 40 $41 0 8 . 0 Vacancy Rents 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 Rents