Retail Rumpus
“Let the wild rumpus start!” cried Max, in Where The Wild Things Are. For retail, those wild things include ravenous high street tenants, grabby grocers, and high-credit healthcare users. The market’s turned, and there’s nowhere to go but up, panelists said at yesterday’s Bisnow Retail Real Estate Summit.
More than 300 of you joined us at The Westin Chicago River North, where our retail leasing panel dug into the main drivers of retail’s growth. We learned the Internet has been a happy accident for brick and mortar and grocery’s dog fight for space is great news for your Sunday dinner, but retailers remain slightly scarred and risk averse. (Heartbreak can do that to a retailer.)
Pircher, Nichols & Meeks partner Dave Pezza (right) moderated, reflecting on how times have changed since he moderated the same Bisnow panel in 2010, when things couldn’t have been worse for retail. (The night is darkest before the dawn, we learned that from the Batman movies.) He asked panelists why some Dominick’s have leased over others, the pros and cons of non-traditional retail tenants (like Tesla or a dialysis clinic), and the real effects of the Internet on retail real estate. Mixed-use projects seem to be on the rise and welcome by the city, Dave notes, like Hyde Park’s Harper Court (a deal he worked on), including 150k SF of UChicago office and almost 100k SF of retail.
Collectively, Inland owns over 74.6M SF of commercial real estate in 49 states, Inland Investment Real Estate Services Group CEO JoAnn McGuinness (left) says, and they’ve found healthcare tenants can provide some interesting, high-traffic synergies. Take a large Inland shopping center in Florida: a hospital division back-filled an old Kmart, and Inland worked with the doctors so they’d hand patients a buzzer and some coupons while they wait. (A patient who just got an ice pop will feel more comfortable with the doc's tongue depressors.) Many retailers are changing their business models to embrace online, JoAnn notes. Walmart can already reach 70% of the US population within 30 minutes from any location, meaning they have everything in place to do same-day delivery.
Stone Real Estate principal David Stone (right) says the market’s carefully watching the handful of new developments on the stretch of Michigan between Wacker and Randolph, but the area needs one significant retailer to take the leap before you’ll see notable improvement in retailer quality. (Who will be its knight in shining retail?) He says downtown office landlords are now appreciating the importance of ground-floor retail in attracting and retaining office tenants. Online, shops like Warby Parker and Bonobos have realized the value of brick and mortar locations, especially since e-commerce's sales tax advantage could soon change. David points out that medical and service tenants can be a curse next to an apparel retailer because they create “retail dead spots,” but can also be a blessing if you have an awkwardly configured space looking for a stable tenant paying above market rent.
We have to publicly shame Regency Centers SVP Nick Wibbenmeyer (right) for being a Blues fan, but he knows his retail. Demand for Class-C assets and tertiary markets remains thin, Nick says. Regency owned six Dominick’s when it closed and five have already been back-filled by quality grocers, showing the unbelievable bench strength of the grocery industry, Nick says. Now that the firm's properties have reached 95% leased, the only way to drive occupancy and income is to reposition with strategic planning, he says. In Glenview, Regency is working on Glen Gate at the old Avon distribution center (next to the train and ITW’s new offices), where a Mariano's Fresh Market retail center will be complemented by high-end multifamily being developed by a Focus/Carlyle/Atlantic venture.
Newmark Grubb Knight Frank executive managing director Greg Kirsch (left) says the remaining 30 Dominick’s locations are empty because of unique attributes of the sites, like shorter-term leases or radical demographic changes. Neighborhoods like Uptown, Armitage, and Southport have bounced back, and Michigan Avenue rents are through the roof. The upward trend should continue, Greg tells us, as brands look for flagship opportunities to physically showcase what they can do. (Look at Nike and Burberry on Michigan.) Michigan Avenue's 6.2% vacancy should come down to 5.2% in the next 120 days, Greg says, a full percentage point lower than any other submarket in the MSA, and things are getting frothy. On Rush and Oak, you’ll see $350/SF from retailers unwilling to jump to another block, he says.
First Western Properties managing broker Paul Tsakiris (right, with VP Fahim Lakhani) says the best thing about this retail recovery is its depth and breadth, as mom and pops bounce back (more mom and pops stores mean fewer mom and pops to yell at us about our posture) and landlords in the suburbs and areas like the South Side start to get their houses in order. Retailers’ pioneering days are over, Paul says. If the space is mid-block or not on the best-known corner, you could give it away for free and nobody would take it, he says, given the capex and risk involved. Mixed-use projects are itching for retail, but you can’t jam it in so easily. At CityGate in Naperville (a Calamos project), First Western couldn’t get a retail bite until a luxury movie theater tenant signed on as anchor, the first step in reaching a critical mass.
A special shout-out to Bisnow's Laura Bellantoni for her debut as emcee filling in for our Chicago office head Jonathan Hobfoll (who said he'd bring us back a souvenir from his trip expanding the Bisnow empire in Canada). Laura came to us as DC office manager in 2012 and just this year entered sales. She's an avid runner and marathoner. (She'll need that stamina to keep up with the near-constant, breathless phone calls with our VP of sales Michael Ponticelli.) Her go-to run spot: the Georgetown waterfront. Hope your delish lunch at Xoco will bring you back here soon, Laura!
We'll have more coverage tomorrow and you can view pics from the event here.
