commercial connections first quarter 2014 will retail break free from the web

8/12/2019 Commercial Connections First Quarter 2014 Will Retail Break Free From the Web

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COMMERCIALCONNECTIONS I SPRING 2014 3

Te good news is that even though Apple, Netflix,Amazon, eBay, and other online giants killed recordstores and video rental shops and are in the processof doing the same to electronics and bookstore bigboxes, e-commerce will never replace the brick-and-mortar shopping experience, says Sean Glickman,CCIM, managing director of Glickman Retail Groupin Maitland, Fla.

Research shows and many retail industry experts agreethat consumers are settling into a preference for ablended shopping experience. In a recent ForresterResearch survey, shoppers said visiting a store served asthe most important source of product research beforepurchasing in every major consumer category excepttravel.

Tis research speaks to the need for retailers to focus

their technology efforts inside the store, said Dan Seligerdigital strategist for 3GV Networks, in a recent BrickMeets Click blog post. We have to stop thinking ofthe Internet as something tethered to a home com-puter or a shoppers smartphone. Te goal should bea borderless communication continuum where everychannel is connected. Smart retailers can use thisapproach to help overcome the inherent limitations obrick and mortar while offering shoppers a blended in-store experience built around their needs.

Te impact of retailers exploration of the online en-vironment is creating new and oftentimes challengingrealities for their real estate footprints. From big boxesto inline neighborhood centers, retail real estate andthose who advise retailers and tenants on their spacedecisions must evolve to ensure spaces meet bothretailers and consumers rapidly changing needs.

BEYOND

THEE-TAILERAWhat factors are shaping

retails next phase?by Jennifer Norbut, CCIM Institute

Te sharp rise in e-tailing and its game-changing impact has created a new

normal in the retail real estate sector. Major national retailers are evolving their

strategies in an effort to survive and thrive in this new market dynamic.

F E A T U R E S T O R Y

STORY CONTINUES ON PAGE 4


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4 COMMERCIALCONNECTIONS I SPRING 2014

BEYOND THE E-TAIL ERAWhat factors are shaping retails next phase?CONTINUED FROM PAGE 3


A variety of retail experts weighed in on key questionsfacing the industry in the current market. Tese CCIM

designees include Glickman; Shawn Massey, CCIM,partner, Te Shopping Center Group in Memphis,enn.; Francis Rentz, CCIM, managing director/se-nior adviser, Southland Commercial Advisors in alla-hassee, Fla.; and Jeff Yetter, CCIM, LEED AP, directorof real estate, Express Oil Change & Service Center inGreensboro, N.C., and a member of the North Caro-lina CCIM Chapter board of directors.

Aside from e-tailings ripple effects, what

are some of the biggest challenges facing

the retail real estate sector right now?

Glickman: Te unpredictable economy, consumerconfidence, and increased taxes that are cutting intoconsumers disposable income are some of the biggestissues.Yetter: Te continually changing, idealistic develop-ment regulations imposed by the local municipalitiesare our biggest issues. Express Oils business is typicallydriven by an initial impulse buy, and the local munic-

ipalities trend of limiting access and visibility directlyaffects our ability to conduct business.

Rentz: Investors with B and C class shopping centersor a weak anchor on the decline must find reuse ten-

ants to fill vacant spaces. Tis typically means nonretail, nontraditional retail, or service tenants, whichoften translates into lower rent or greater capital in-vestment to reshape the property.

Massey: Te lack of good quality retail space availabil-ity is the biggest challenge. With the lack of new de-velopment since 2008, we find our clients in search ofspace that is simply not built today.


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What factors are influencing retailers site

selection and acquisitions decisions in this

environment?

Yetter:We have seen a major increase in competitionfrom a pad-site buyer standpoint. Tis has produceda scarcity of viable sites and driven up pricing in ourlarger markets. Tis is due in large part to the resur-gence of quick-service restaurants, bank branches, andsimilar out-parcel retailers. Tis is also a result of thelack of new developments being delivered as comparedto the pre-economic downturn conditions.

Massey: Most retailers are very risk adverse right now entering areas where they can avoid unfavorablezoning or adverse site conditions is critical. Retailersare becoming ever-more data driven as well. Tey areperforming extensive research to get a clear pictureof the factors shaping an areas retail environment,including demographic, socioeconomic, and psycho-graphic profiles, the workplace population, and con-sumer spending patterns.

Rentz: My clients are looking for quality real estatewith no weaknesses. It is more important than everthat the site has all the fundamentals that make fora successful retail site: visibility, accessibility, parking,and favorable demographics. A solid anchor tenantmay get a project built, but a great location and great-er design will be even more important going forwardto sustain a project. As Yaromir Steiner said in a recentShopping Centers oday article, Te place is the an-chor.

Whats next on the horizon for the retailreal estate sector?

Rentz: Retailers will continue to reduce their squarefootage into smaller, more efficient footprints. radi-tional retailers will continue to perfect and grow theironline presence, while the e-tailers will attempt tofine-tune their brick-and-mortar locations to perfect

a one-day delivery strategy. Te survivors and thriverswill have a great geographic footprint of stores as wel

as offer a great online experience.

Yetter: Customer-first service is the key. Te auto-ser-vices industry has traditionally focused on upsellingcustomers, thus creating a lack of trust among consumers. We are focused on combating that perceptionby delivering the highest level of service and focusingon the individual customers car needs. As in most industries, the level of service and the customer experi-ence continue to become more important as customers evaluate their growing purchase options.

Massey: It is all about the customer experience. Manyretailers and restaurants fail to recognize that the cus-tomers needs and wants come first. Te retail cus-tomer today wants it all from omni-channel retailingto being wowed with their in-store experience. Tismight be classified as the Apple effect that many re-tailers are trying to replicate. Tose who do not adoptthese two pillars in the future will disappear from theretail landscape.

Glickman: Most retailers are shifting focus and heavilyinvesting in their omni-channel platforms, informa-tion technology, logistics, and same- or next-day delivery. By doing so, retailers like arget, Macys, Nord-strom, Walgreens, Te Gap, Office Max/Office DepotWalmart, and many others are positioning themselvesto compete in the digital world.

Jennifer Norbut is senior editor of Commercial Investment ReaEstate, the flagship publication of the CCIM Institute. A version ofthis article was originally published in Commercial Investment ReaEstate.

>> Read more at www.ccim.com



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1) Te Internets rue Impact on Retail Sales.Without question, ecommerce retail sales are growing.However, they still remain a small portion of total retailsales. In 3Q13, ecommerce sales totaled $67 billion,which represents less than 6 percent of all retail sales,according to the U.S. Census retail trade report.

2) Online Media Sales. Books, music, video, andother items that can be digitized and downloadedcomprise about 35 percent of Amazons sales. Applyingthis metric to the entirety of ecommerce means thatInternet sale of items that cannot be digitized anddownloaded is about 3.7 percent. If 3D printing ofmerchandise becomes possible, the world as we knowit will change.

3) Retails Efficient Logistics Model. Efficiencyin logistics has revolutionized retail. For example,Walmarts cross-docking model provides the bestexecution of what is called the last mile in the chain ofdistribution. A customer comes into the store, selectsmerchandise, carries the merchandise to the car, andthen transports the merchandise the last mile fromthe store to home. Te cost of the final mile is notincluded in the retail price of the merchandise. On

10RETAILTRENDSTOWATCHBy Gary Ralston, CCIM, CPM, SIOR

the contrary, delivering merchandise to the customershome is a costly and inefficient endeavor. One majorInternet retailer spends more than double to deliverthan the amount it collects for shipping. Hence, thepractical application of the last mile principle meansthat ecommerce is likely to have 100 percent market

share of items that can be digitized and may never evenreach 10 percent market share of items that cannot bedigitized.

4) Te Internets Other Impact. Online sales arenot only impacting the retail sector, but the Internetis creating more informed consumers. Well-educatedshoppers are causing pressure on retail margins, whichtranslates into pressure by tenants to lower rent.

5) More Sales, Less Space. Te wide range ofavailable technology offers retailers more efficientinventory control and space needs. Tey are applyingthe 80/20 rule 20 percent of their SKUs generate mostof their sales and gross margin. Te result: Retailers cangenerate more sales per square foot in less space causingstore formats to shrink.

6) Bigger Players Dominate. Te supermarketsector is being consumed by dominant players withlarger stores.

7) National Anchors. In large shopping centersnational credit-tenant anchors are winning out oversame-category regional and local tenants.

8) Big-Box Woes. Large vacant boxes are becomingincreasingly more difficult to re-tenant.

9) Exclusive Use. Second-generation retail spaceis being increasingly impacted by exclusive-use leaseprovisions.

10) Service enants riumph. Landlords are makinggreater use of service tenants to maintain occupancy. Arecent study revealed that service tenants comprised lessthan 15 percent of total occupancy 10 years ago versusmore than 25 percent today.

Gary M. Ralston, CCIM, CPM, SIOR, is managing partner ofColdwell Banker Commercial Saunders Ralston Dantzler Realty LLCin Lakeland, Fla.

F E AT U R E E X T R A !


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The IssueAs a result of a Supreme Court ruling in the early1990s, Internet retailers have largely been exemptedfrom collecting state and local sales taxes on their salestransactions because these tax laws were seen as overlycomplex and placing too heavy a burden on interstatecommerce, unless the retailer had a physical presencein the state.

Since that time, the number of people and business-es using the Internet for e-commerce transactions hasgrown exponentially, and a large component of thesetransactions remain tax-free. At issue is the fact thatbrick-and-mortar retailers must collect and remit statesales-and-use taxes, yet many remote sellers suchas catalog and online only vendors are exemptfrom such requirements. As a result, Internet retailershave an unfair advantage over their community-basedcounterparts, and states are losing out on billions ofdollars in much-needed (but uncollected) revenue.

Impact on AmericansBecause of the current treatment of Internet retailers,the amount of sales tax that a state or locality isable to collect will be less than otherwise provided.However, passage of federal legislation allowingstates to require Internet retailers to collect sales taxfor online purchases and to level the playing fieldbetween brick-and-mortar and Internet-based retailers

is gaining ground on Capitol Hill. Tis includes theMarketplace Fairness Act (H.R. 684), introduced byRepresentatives Womack (R-AR) and Speier (D-CA)and a Senate measure (S. 743) authored by SenatorsEnzi (R-WY) and Durbin (D-IL).

NAR Policy

Passage of H.R. 648 and S. 743 are necessary due tothe deteriorating fiscal condition of many state andlocal governments. Tese budget shortfalls could leadthem to opt for higher real estate and other propertytaxes/fees on consumers and business to make up fothis lost revenue.

Legislative Outlook

Going back to 1994, the issue of marketplace fairnesshas had more than 30 hearings in both the U.S. Houseof Representatives and Senate, including hearings before the U.S. House Judiciary Committee in both2011 and 2012.

In May 2013 the Senate passed S. 743. Tis legislationwould create authority for state governments to collecsales taxes on Internet sales for goods that are deliveredto their states, which would level the playing field be-tween brick-and-mortar and e-commerce retail busi-nesses while assisting the states in collecting billions ouncollected state sales taxes.

INTERNET SALES

TAX FAIRNESSLegislation Faces Hurdle in HouseBy Vijay Yadlapat

NAR Senior Legislative Representative Financial Services

C A P I T O L R E P O R T



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echnology has become a way for us to be more af-fordably productive than ever before. o stay on top ofyour game you must stay ahead of the curve.

Here are five apps that can speed your productivityhelp you be more efficient and enhance your profilewith clients.

10bii Financial Calculator(In A Day Development; Platform iOS, Android; Cost $5.99)

Tis one is a no brainer! Carry one less item with youon the go- all of the processing power of your physica10BII calculator but now you can leave the old oneback at the office.

TheAnalystReal Estate(Blyncc, LLC; Platform iOS; Cost $9.99)

Written by a CCIM designee for commercial real es-

tate practitioners, this is one app that understandswhat you need. Simply, enter a few data points andyou can produce a lease vs buy analysis, do projectionsprint reports, and even add your logo for a very pol-ished and professional look.

With the passage of S. 743, the fate of Internet sales taxfairness rests with the House. Te House bill, whichclosely resembles the Senate version, has been stalledin the House Judiciary Committee, where ChairmanRobert Goodlatte (R-VA) has voiced concerns overthe complexity of the bill. While the Chairman rec-ognizes the need to resolve disputes over collection ofsales tax on Web-based purchases, he opposes the billas currently written because it would force businessesto wage through potentially hundreds of tax rates anda host of different tax codes and definitions. Te bill,

he says, still has a long way to go. Also, convincingconservative Republicans that the proposal would notamount to a tax increase on online consumers remainsanother major hurdle for the Marketplace Fairness Act.Chairman Goodlatte held off on scheduling a markuplast year, but he said he would hold a hearing on theissue in early 2014. Te Chairman has released a list ofprinciples for developing his own legislation.

Current NAR Action

In a January 2014 joint letter sent to Chairman Good-latte, NAR along with hundreds of organizations thatcollectively represent more than 3 million Americanbusinesses large and small called for immediate ac-tion on the long overdue issue of marketplace fairness.

Citing more than 20 years of inaction and the SupremeCourts recent decision affirming that this is a matterfor Congress to address, the letter urges Congress tomake the 2013 holiday shopping season the last where

Main Street businesses must compete at a govern-ment-created price disadvantage.

>> Stay informed about legislative and regulatory issues andactions that affect the commercial real estate industry by visitingREALOR.org/Commercial

Five

MUSTHAVE

Apps forCommercial Practitioners

By Alex Ruggieri, CCIM, GR

T E C H S AV V YC A P I T O L R E P O R T

INTERNET SALES

TAX FAIRNESSLegislation Faces Hurdle in HouseCONTINUED FROM PAGE 7


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Walk Score(Walk Score; Platform iOS, Android; Cost FREE)

Te companys flagship product is the Walk Score, awalkability index which rates any address you inputas to how close it is to important amenities. As trendscontinue towards clients wanting locations in walkfriendly areas you can use this app to augment yourbrochures by supplying the index in your marketingmaterials.

iAnnotate(branchfire; Platform iOS 6.0 or later; Cost 9.99 ; Android,Lite Version Available)

Use this app to read and share PDF, DOC, PP andimage files. With I-Annotate you can open a PDF,write notes, make edits and changes directly on youriPad. Ten email the annotated PDF with notes toyour collaborators. Editing on the go can help youmake those quick changes even faster.

Scanner Pro(Readdle; Platform iOS 6.0 or later; Cost $2.99)

Tis app is a must have, Scanner Pro turns your handheld device into a powerful document scanner. Youcan instantly scan a document and convert it into aPDF anywhere which helps when you need to sendsomething to a client right away and are away from theoffice. Tis is one app that can make your productivitysoar.

Alex Ruggieri, CCIM, GRI, is a Senior Investment Advisor withSperry Van Ness-Ramshaw Real Estate in Champaign, IL. He is cur-rently serving on the NAR Commercial Committee and is the host ofCommercial Connections Podcast, listen or download at REALOR.org/CCP

>> Get more tips and keep up with industry news at NARs blog,

Te Source, bit.ly/TeSourceBlog

o give REALORS even more data in their arsenaof information, Realtors Property Resource, (RPR)recently added Points of Interest (POI) to the maps ifRPR Commercial. Tese POIs arent simply just pinon a map. Separated into ten broad categories suchas retail, manufacturing, transportation, retail and fi-nance, with nearly 100 subcategories, each point of in-terest displays basic information about the business at

that location including address, number of employeesannual sales volume and industry.

So just how can you use this information with clients?Here are 3 examples from RPR users of how POIs cannot only educate and impress clients, but showcaseyour market expertise.

One REALOR took advantage of the POIs to sup-port the terms of a lease renewal. Te property is a con-venient store. By pulling financials on franchisees in

nearby geographies, the REALOR was able to vali-date that the current location is more successful thanother franchisees in neighboring geographies based onthe sales volume being significantly higher. Te currenlocation attracts consumers and produces sales; whichequated to a win!

Another REALOR was recently representing an in-surance company looking to open a new office. Usingthe POIs in RPR Commercial, the REALOR was

able to not only scout out the competition from a salesvolume perspective using the Insurance category, butwas also able to determine a desirable area for the location based on proximity from the competition, as wellas select an area that would attract agents, an area withrestaurants, grocery stores, and even bar options. Teclient wanted staff to have amenities close to the office

Making a Point with

RPRCommercials Maps

T E C H S AV V Y



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Making a Point with

RPRCommercials Maps

An article in Choose Chicago recently caught theeye of a REALOR. Reporting that approximately35,000 hotel rooms exist in Chicago with more thanan additional 2,500 rooms under construction, alongwith an incline in Chicagos occupancy rates, thisREALOR realized she could use the POIs in RPRCommercial to demonstrate to investor clients whichareas/geographies need hotels. Starting by looking atnearby tourist attractions, and then highlighting theannual sales volume of competitors and how many em-ployees are needed to successfully run a hotel, all fromthe POIs, the REALOR left the clients impressedand ready to sign.

Tese are just three of many ways to use the POIs inRPR Commercial. With 10 categories and 100 sub-categories for the points of interest, the possibilities are

endless!

Ready to validate your point?

>> RPR is a free member benefit only available to REALORS.

For more information: blog.narrpr.com/commercial

REALTORS

PROPERTY

RESOURCE

CONTINUED FROM PAGE 9

Te retail sector provided stable performance in 2013Consumer spending remained steady through the yearand notched a noticeable gain in the last quarter, ashouseholds wealth received a much-needed boost fromboth financial and residential housing markets. Retailsales were up 4.2 percent in 2013 compared with theprior year, driven by a 9.8 percent gain in auto sales anda 5.9 percent rise in sales of building materials.

With consumer dollars flowing into stores, demandfor retail space was robust. Te fourth quarter 2013

saw net absorption total 4.5 million square feetthehighest level since the fourth quarter 2007, accordingto Reis. Meanwhile construction of new retail proper-ties also reached a new high since the fourth quarter2007, totaling 2.1 million square feet. However, withdemand outstripping supply by a wide margin, vacancyrates declined 10 basis points in the fourth quarter. Re-tail vacancies were down 30 basis points in 2013 com-pared with 2012. Asking rents for retail spaces rose 0.4percent in the fourth quarter, and advanced 1.4 percenfor all of 2013.

With strengthening fundamentals underpinning thecontinued recovery in retail markets, investors main-tained a measured pace of acquisitions. Sales of majorproperties rose 8 percent in 2013, totaling $60.8 bil-lion, based on data from Real Capital Analytics (RCA)

RETAILPRICES

RISEas Investors Seek Higher Yields

By George Ratiu, NAR Director,

Quantitative & Commercial Research

T E C H S AV V Y B Y T H E N U M B E R S


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A welcoming development was the broadening of in-vestors appetite for risk, as capital flows moved intosecondary and tertiary markets and into strip centers.Sales of strip centers and single-tenant retail buildingsrose 26 percent on a yearly basis, outpacing sales ofregional malls.

In another sign of improving conditions, portfoliotransactions comprised a larger share of deals in 2013.Portfolio sales jumped 23 percent in 2013 from theprevious year, while individual property sales declined1 percent. Portfolio transactions were topped by Black-stone Retails $1.5 billion acquisitions in multiple lo-cations, followed by Westfield Retails $1.4 billion indeals. On the individual side, significant transactionsoccurred in markets across the country, signifyingbroad-based interest in all tiers. Te top deal was Mac-

erichs acquisition of the Green Acres Mall in ValleyStream, NY for $500 million. Te other top deals werefor Water ower Place in Chicago, the Lloyd Center inPortland, the Hollywood & Highland Center in LosAngeles and the Piaget Building Retail Condo Lease-hold in New York.

Investors shifting preference for riskier deals becamemore pronounced in 2013, as cap rate compressionin major cities continued and smaller markets offeredcomparatively much better returns. Te national aver-

age capitalization rate for retail spaces was 7.0 percentin 2013, 20 basis points lower than 2012, accordingto Real Capital Analytics. In the six major marketstracked by RCA, cap rates averaged 6.3 percent, whilein the rest of the markets, cap rates averaged 7.3 per-cent.

While Los Angeles and Chicago topped the list of mar-kets by dollar volume, with $3.6 billion in transactionseach, secondary markets witnessed the largest boost ininvestments. Ranked by growth, Cincinnati postedgrowth in sales of 251 percent in 2013, leading a list ofcities which recorded triple-digit gainsLong Island(223%), Austin (179%), Portland (155%), Las Vegas(147%), and St. Louis (106%). In a positive develop-ment, retail investments during 2013 advanced acrossall markets and regions, both in terms of volume andprices.

Adding to the positive trends, outstanding retail dis-tress declined 14 percent in 2013, to a total of $22.8billion. Compared to the $72.1 billion in retail defaultswhich occurred in the wake of the 2008-09 recessionand financial crisis, the current levels are manageable,especially considering the 63 percent rates of returnon distressed loans. Sales of distressed retail propertiesmade up less than 7 percent of total volume in 2013.Te CMBS sector retains the largest volume of retaildistress, at $14.6 billion, followed by domestic banks,which hold $4.0 billion.

With capital availability rising and diversifying, cou-pled with improving fundamentals the 2014 outlookfor retail markets is positive. Global consumer retailspending is expected to be stronger this year, particu-larly in U.S. and European markets. In addition, in-

vestors have clearly signaled that the much-expectedrecovery in smaller markets is well underway.

>> Stay up to date with Commercial and other real estate research by

visiting REALOR.org/research-and-statistics

2013 Market 2013 Sales Volume ($M) YOY Change

1 Los Angeles 3,575,918,643$ -2%2 Chicago 3,546,447,618$ 8%3 Manhattan 3,452,892,590$ -36%4 Dallas 1,845,315,908$ -5%5 Houston 1,615,946,664$ 54%6 Atlanta 1,473,197,824$ 50%7 Las Vegas 1,377,166,854$ 147%8 Seattle 1,313,085,040$ -3%9 NYC Boroughs 1,251,907,396$ -26%

10 Boston 1,176,939,125$ -10%11 Denver 1,125,015,047$ 12%

12 Tampa 1,092,712,513$ 29%13 Inland Empire 1,083,077,925$ 19%14 Orlando 941,479,172$ 82%15 DC VA burbs 906,905,237$ 33%16 Miami 905,097,662$ -22%17 Long Island 892,316,087$ 223%18 Phoenix 890,785,931$ -42%19 San Diego 830,824,284$ -33%20 East Bay 773,848,509$ -7%21 Portland 765,982,371$ 155%22 Minneapolis 742,045,007$ 13%23 Broward 728,682,965$ -20%24 San Francisco 673,356,294$ -24%25 Central CA 591,397,666$ 15%26 Kansas City 589,722,392$ 68%27 Cincinnati 588,756,045$ 251%28 St Louis 584,281,140$ 106%29 Orange Co 563,872,298$ -45%30 Philadelphia 552,869,275$ 71%31 Austin 537,155,864$ 179%32 No NJ 536,926,992$ -36%33 Charlotte 534,456,421$ -31%34 Cleveland 524,969,742$ -10%35 Detroit 519,679,012$ 44%

36 Nashville 514,369,221$ -26%37 SW Florida 504,007,524$ -4%38 Hawaii 493,172,708$ -33%39 DC MD burbs 470,648,174$ -22%40 Palm Beach 466,125,120$ 25%

Rankings

$3,576

$3,546

$3,453

$1,845

$1,616

$1,473

$1,377

$1,313

$1,252

$1,177

$1,125

$1,093

$1,083

$941

$907

$905

$892

$891

$831

$774

$766

$742

$729

$673

$591

$590

$589

$584

$564

$553

$537

$537

$534

$525

$520

$514$504

$493

$471

$466

-2%

8%

-36%

-5%

54%

50%

147%

-3%

-26%

-10%

12%

29%

19%

82%

33%

-22%

223%

-42%

-33%

-7%

155%

13%

-20%

-24%

15%

68%

251%

106%

-45%

71%

179%

-36%

-31%

-10%

44%

-26%-4%

-33%

-22%

25%

B Y T H E N U M B E R S

2 0 1 3 S A L E S R A N K I N G S B Y M A R K E T


12/12

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commercial connections first quarter 2014 will retail break free from the web

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