My Takeaways from the Show!
And that’s a WRAP on ICSC RECon 2018! The Progressive Real Estate Partners team was there in force with 12 of our brokers actively dealmaking, networking and diligently working the floor. Collectively we had a record 100+ formal meetings and at least a couple hundred informal meet-ups where we were able to showcase our firm’s listings of retail properties for sale or lease in SoCal’s Inland Empire.
As the team leader, and 25-year industry veteran, I always like to take a step back after the conference and share what I learned. From my perspective this was one of the best shows yet – here are some of my key takeaways:
Retail Industry is Dominated by Change – No one denies that the retail world is changing to an industry that includes a lot more food, services, health and entertainment related uses. Add to that the impact of technology, competition from e-commerce and the demand for more experiential retail concepts and there’s change happening across the board. There has never been a more challenging yet exciting time to be working in this industry. The mood at the show was very positive as the individuals attending are the same ones that are seeking to solve the challenges that change is creating.
Quest for Highest & Best Use of Land – A recurring theme in many of our meetings was identifying the highest and best use for land. Is it retail? If yes, what type of retail? If no, what are the other options? In some cases, our long time retail clients are taking their development skills and applying them to the development of other product types including medical, industrial, residential or mixed-use. There is a clear recognition that those site plans from 2008 are no longer relevant in 2018.
Fast Casual Tenants Can’t Find Enough Quality Space – Developers that are building well located multi-tenant buildings that can accommodate the national brands of coffee, sandwich, burger, pizza, cell phone and similar uses are enjoying very heavy retailer demand for these projects. On the other hand those representing these types of tenants are frustrated at the number of competitors vying for the same quality space. The result is we’re seeing record rents for this type of space.
Inland Empire Cities are Being Pro-Active – Our team met with representatives from over 10 Inland Empire cities and found that the cities recognize the current challenges in the retail industry and are responding by being pro-active and creating more flexibility in zoning, addressing parking constraints, facilitating entitlements, and working to expedite the approval process. Despite state and federal mandated requirements and local constraints, city staff members by in large care deeply about their communities and are eager to facilitate development and drive economic prosperity.
Lease Deals Are Harder to Complete: We heard a lot of people voicing concern about how hard it is to get deals done with many retailers. In my opinion too many tenants are spending their energy trying to mitigate risk instead of focusing on the truly important deal points. Also, they are frequently not recognizing the uniqueness to each project and just start with their boilerplate LOI versus recognizing the difference between locating in a 5,000 SF strip center vs a 200,000 SF project.
Single Tenant Cap Rates Continue to Set Record Highs – Developers are very appreciative of those 1031 buyers who are selling land and highly inflated residential property that are causing cap rates for newly constructed retail properties with long term leases to achieve record pricing. In many cases, these record low cap rates are allowing a lot of deals to get done that might not otherwise be financially viable.
Multi-Tenant Retail Cap Rates are Trending Higher – Due to rising interest rates as well as concerns about re-tenanting and the overall economic cycle, most multi-tenant retail centers will require a cap rate that is 50 to 150 basis points higher than the best cap rates achieved in 2016. Exceptions are for newly constructed, top of class, projects. This disconnect between what buyers are willing to pay and what sellers want may be diminishing as sellers accept the fact that 2016 pricing is just unrealistic.
Overall, no matter who I spoke with, they indicated that they had a highly productive conference. My compliments to the ICSC team for putting on another very successful convention. Our team is excited to follow up on the opportunities uncovered during RECon 2018. If you want to further discuss how our team can help you take advantage of the changing retail environment feel free to reach out to me at 909-230-4500 or [email protected].