by Nadav Ravid
Retail real estate is making a comeback, at least in the prime real estate markets. This year’s ICSC Retail Real Estate Convention in Las Vegas was teeming with bustling dealmakers in a way we haven’t experienced since the market crashed. There was a tangible feeling of sanguinity and excitement in the air. We talked to many of the leading retail brokers throughout the country and asked them for their take on the state of retail in 2012. Here’s what they had to say:
“The market is more active than it has been in the last four years. Deals are happening all over the place. For the first time in three or four years, on the better streets like Rodeo Drive or Robertson Boulevard, on Melrose Avenue, and from the 3rd St Promenade in Santa Monica to Malibu, I’m experiencing multiple offers for the same spaces. Streets have tightened up so much that tenants are having to move quickly and out-bid other tenants. The market is extremely healthy,” said Jay Luchs, Executive Vice President at CBRE.
Luchs, who focuses on landlord and tenant retail representation for fashion brands and other retailers and is considered to be one of the top brokers in the country, also added a cautionary note: “There is concern that this increased demand will lead landlords to push for skyrocketing rents, which will hurt this recovery. But as long as landlords maintain rents at a certain level or even increase them just gradually, they will continue to attract multiple tenants to the market and revive the economy.”
John Auber, President of The Auber Group, has been representing some of the most successful retailers nationally for over twenty years. He stated, “I believe that the retail landscape is improving and if it is to continue, it really depends on the improvement in the economy and, more specifically, the job market. The number of retailers active in the market has increased. The landlord community certainly believes the retail landscape is improving and landlords are approaching their deals a bit more aggressively. The better centers continue to garnish premium rents and remain very well leased; the ‘B’ centers will be challenged to raise their level of performance by attracting the better performing tenants.”
Speaking about the revived market in downtown Los Angeles, Derrick Moore, First Vice President at CBRE and one of the leading brokers representing landlords and tenants in the area, said that “there is definitely an increase in activity. The pacing of the market is upbeat. My institutional clients are out actively looking to acquire deals. And retailers have gotten off the fence. They’re still focused on the ‘A’ locations, where there’s good competition. The recent Los Angeles deals by Wal-Mart, at Cesar Chavez and Grand Avenue, and Smart & Final, at Figueroa and 8th Place, are two significant deals that go along with the Fig at 7th Target deal. These deals help underline the strength of the overall market. The grocery base is certainly an indicator by these major retailers that the residential market in downtown Los Angeles is going to continue to grow at a very healthy pace.”
Karen Bellantoni, Executive Vice President at RKF, one of the top brokers in Manhattan and other major markets, has been representing landlords and tenants for over twenty-five years. She is very upbeat about the market and told us that “urban markets are very strong, especially street locations up and down the east and west coasts. There is a new flurry of leasing in Los Angeles, with Beverly Hills having a strong resurgence. In Miami, Lincoln Road, the Design District, and Aventura are all showing strength. New York is hotter than ever.”
But not everyone had a Pollyannaish view. At the other end of the spectrum, Michael Townsend, President of Townsend & Associates and a national advisor for leading retail merchants, expressed concern that “high street retail is showing huge demands and increasing rents— even key money—far outstripping sales revenue.”
Time will tell whether the increased demand is sustainable, and whether the demand for high-end retail will percolate through the rest of the market. One thing is clear, however: the mood of the retail industry in 2012 is certainly moving in the right direction.