Re: This just in… Carlos and others will enjoy - Posted by ray@lcorn
Posted by ray@lcorn on November 23, 2004 at 12:11:33:
Carlos,
Glad you enjoyed the article… its always fun to see what the academics are thinking. I should have mentioned that TWR has crossed the line from being purely objective third-party observers. Their new partnership with CBRE places them squarely on the supply/sell side. I notice a much more optimistic editorial tone than in the past.
And to expand their 3rd point, I think the effects of higher rates are going to be more unequal than they will be able to track, since they use mostly REIT and institutional ownership data for their numbers. “A” and strong “B” properties in strong markets will see little change; but weak "B and “C” properties are already weakening in asking caps. But I still don’t think an increase in long term rates of much more than 100bps is in the immediate future? driven by deficits, not the Fed? and not enough to quell demand.
Re grocery anchored retail… I’ve done a bunch of that, but the climate for new development in metros the last five years has been very, very spotty. Somewhat better in secondary, tertiary and rural markets. W-M is killing even the bigs (e.g. Kroger, Food Lion, Harris-Teeter) in my area (SE)… can’t speak for the rest of the country other than what I read and hear anecdotally…
H-E-B in TX is developing new stores-in-a-store concepts, and a few other regionals are also getting on the same bandwagon. Kroger has a neat upscale prototype they’ve tested for the last couple of years… w/wine shops, deli/bakery/catering ops, etc… Most are sticking to neighborhood strips, very little demand for new free-standing stores or big box… the warehousers (Sams, Costco) are pressing them on that end… upscale is the only market left to migrate to, and Target is giving them a run there, boosting grocery items over 10,000 SKUs now… good news is the Sears/Kmart deal is likely to pull Kmart away from grocery… time will tell. I do expect to see some new grocery concepts rolled out at ICSC in Vegas next May. The grocers are fighting for survival, and won’t go down without a fight.
As always, demographics are the key for new strip development… the trend is for locations between big population centers and the nearest W-M… trying to cut them off at the pass… looking for tenant mix in the “lifestyle center” categories, fitness-crafts-boutique… hits the upscale market segment, which in my opinion is where the opporunity is… the dollar stores and drugstores are going free-standing, also adding groceries, so they are competition now rather than good partners… grocers will pay more psf if brought to the party late, after the other anchors are committed. They know they ain’t the draw anymore, so they follow rather than lead. If the market is big enough to justify, better to design for two or three medium size anchors (~20T-30T sf each- perfect for fitness clubs which draw heavy traffic), more flexibility in tenant mix, less problem with co-tenancy clauses for the inlines. If you get the grocers to talk, ignore the overage rent spiel, build the pro forma on a base rent lease and structure with five year raises.
ray