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Commercial Real Estate, Development, Economics, Real Estate Trends, Retail Real Estate, Twin Cities Real Estate, Urban Planning

Wal-Mart, Target Roll Out Smaller Urban Store Formats to Do Battle with Dollar, Drug Store Rivals

“Big Box” Discount Retailers Downsize Stores In Bid to Seize Market Share

Here is a recent article by Randyl Drummer posted by the CoStar Group. It shows how Target along with Walmart is adapting to opening smaller locations in urban areas

The latest growth strategy at Wal-Mart stores is to get bigger by getting smaller. After building the world’s largest retail platform by opening superstores in every major U.S. market, Wal-Mart is doubling down on a strategy of opening new stores that are a fraction of the chain’s traditional size, targeting densly populated urban areas where demographics increasingly show more people prefer to work and live.

The Bentonville, AR-based retailer is aggressively expanding its Neighborhood Market stores, which average 38,000 to 40,000 square feet — a fraction the size of Wal-Mart’s traditional 180,000-square-foot “Supercenters.”

Bill Simons, president and CEO of Wal-Mart, said the company plans to open more than 200 more Neighborhood Market stores in the U.S. over the next 18 months, bringing the total to more than 500.

“We continue to roll out this format aggressively throughout the country, opening more sites in the second quarter than in any other quarter in our history,” Simon said. “In fact, we opened 12 stores in just one day this (past) quarter.”

Moreover, the retailer has signaled it may green light an even smaller format called Walmart Express, with stores that range in size from 10,000 square feet to 12,000 square feet. Wal-Mart has built 20 Express stores in a pilot phase that has “performed very, very well for us,” Simon said, adding that the retailers plans to share more details about its plans for the smaller format at its Oct. 15 meeting for the investment community.

Both concepts compete directly against a rising number of grocery stores, drug stores and dollar discount stores that have added groceries to their offerings to reach shoppers looking for value and convenience.

The giant retailer’s smaller formats are part of a multichannel strategy to stock products purchased at its bricks-and-mortar stores as well as quickly deliver products ordered online.

In part to support that rapid product delivery strategy, Wal-Mart this week announced plans to open two new online fulfillment centers, an 800,000-square-foot facility in Fort Worth, TX, and a 1 million-square-foot center scheduled to open in early 2014 in Bethlehem, PA, that will be its largest ever.

“Increasingly, access is becoming more important to customers. And we believe we have an opportunity today through multiple formats to take our brand closer to the customers,” Simon told investors at the recent Goldman Sachs Global Retail Conference.

Express stores sized as high as 15,000 square feet have tested and delivered very well against competing formats, offering shoppers groceries, pharmacy items and fuel at competitive prices against dollar store, drug store and grocery rivals, he said.

While not a new concept – Wal-Mart has been opening typical grocery store sized markets since 1998 – Neighborhood Markets is now one of the fastest-growing formats in retail, with 60% growth and mid-single-digit comparable sales over the last couple of years, Simon said.

Target: Also Testing Smaller Format, But Proceeding Cautiously
Fellow discount retailer Target has been more deliberate in the national rollout of its smaller-format CityTarget stores. Although only two have opened so far in 2013, for a total of seven, the company sees immense promise in the new smaller format.

Read the entire article:

Business Valuation, Commercial Real Estate, Economics, Industry News, Investment Real Estate, Office Real Estate, Real Estate Trends, Retail Real Estate, Twin Cities Real Estate

Compare Minneapolis’ “Most Expensive Street” To Other Cities

Nicollet Mall demands the highest office rents in Minneapolis, but it’s cheap compared to some streets in bigger cities.

Here is an interesting article that was recently written by Burl Gilyard from Twin Cities Business

 IDS CenterThe IDS Center on Nicollet Mall

October 1, 2013

 Local boosters often tout that the Twin Cities ranks high on many lifestyle surveys.

But the metro area ranks nowhere near the top in a new survey from Chicago-based Jones Lang LaSalle, a commercial real estate services firm, which tallies the “most expensive streets” across the United States based on the cost of leasing office space. Nicollet Mall in downtown Minneapolis ranked as the 25th-most expensive street in America in 2013, according to Jones Lang LaSalle.

The most expensive street in the country is Sand Hill Road in Menlo Park, California. The gross rent per square foot along Sand Hill Road, an area known as the home of many venture capital companies, is $110.76 per square foot. Fifth Avenue in New York City ranks as the second-most expensive with an average rate of $102.02 per square foot.

 Both high-priced avenues are more than three times as expensive as the priciest rents along Nicollet Mall in Minneapolis, which averages a gross rental rate of $30.60 per square foot, according to Jones Lang LaSalle.

The Jones Lang LaSalle survey noted: “Midwestern markets remain the most affordable.”

The numbers are based on asking rents, which might differ from the actual rent received, as of the second quarter of 2013. Gross rent per square foot includes the net rental rate, plus operating costs and taxes.

Abel Balwierz, a senior research analyst with Jones Lang LaSalle, said that Nicollet Mall is home to some high-profile trophy office properties. But another key factor is the corporate headquarters of retailer Target Corporation at the south end of the Nicollet Mall. Balwierz said that Target likes to have vendors located within just a few minutes walking distance from its corporate offices.

“Target vendors are the main type of tenant that’s interested in space along Nicollet Mall,” Balwierz said, noting that other tenants include law firms and financial services groups.

“Target, I think, has a big influence on the downtown market,” said Jim Vos, a principal with Cresa Minneapolis, a tenant representation firm.

The top-tier office space in downtown Minneapolis is performing better than the overall market, which remains a mixed bag.

A mid-year survey from Bloomington-based commercial real estate services firm Cushman & Wakefield/NorthMarq found the Class A office vacancy rate was 10.7 percent in downtown Minneapolis at the end of the second quarter, the lowest office rate for any class of office space across the metro. At the same time, Cushman & Wakefield/NorthMarq reported that the overall office vacancy rate across the Twin Cities remained high at 17.5 percent.

Commercial Real Estate, Development, Executive Insight Series, Office Real Estate, Retail Real Estate, Twin Cities Real Estate, Uncategorized, Upcoming UST Events

Fall 2013 Real Estate Executive Insights Speakers Announced

The Real Estate Executive Insight Series invites speakers from the real estate industry to provide valuable information and discussion about hot topics and current trends. This is a free program and is open to the public. Attendees who are interested in the MS Degree in Real Estate program are encouraged to participate in an optional class visit following the speaking presentation. Registration is required.

Schedule of Events

5:15  – 6:00 p.m.: Registration and networking reception
6 – 7:00 p.m.: Speaker presentation
7 – 9:00 p.m.: Optional class visit

Cost: Free


Jim Stoplestad, Exeter Realty

Tuesday, October 15
St. Paul Post Office Apartment Conversion Project
Speaker: Jim Stolpestad, Exeter Realty

Jim Stolpestad of Exeter Realty Company will discuss the St. Paul Post Office apartment conversion project, the history of the project’s development and its progress. The 17-story central post office building is located on Kellogg Boulevard in downtown St. Paul. Exter plans to covert the building into 250 units of market-rate apartments overlooking the Mississippi River.

Exeter Realty Group develops and manages new office, retail, housing and mixed-use projects, as well as tax credit-driven historic and other office, retail and housing rehab projects. Projects are located in stable or emerging urban neighborhoods of the Twin Cities.

This program has been approved for one hour of real estate agent/broker continuing education credit through the Minnesota Department of Commerce.


Rick Collins, Ryan Companies


Tuesday, November 19
Downtown East Development Project
Speaker: Rick Collins, Ryan Companies

Rick Collins of Ryan Companies will discuss current development projects, including the Downtown East development project surrounding the new Vikings stadium, as well as the challenges and opportunities in the development of commercial real estate. The Downtown East mixed-use development and three-block urban park/plaza consists of 1 million square feet of office space in two, 20-story office buildings with the capacity for more than 5,000 employees; 40,000 square feet of retail space on both street level and in the skyway; and 300 residential units.

Ryan Companies is a full-service commercial real estate firm with expertise in development, architecture & engineering, capital markets, construction and real estate management.

This program has been approved for one hour of real estate agent/broker continuing education credit through the Minnesota Department of Commerce.

Retail Real Estate, Twin Cities Real Estate

Twin Cities Retail Vacancy At 5-year Low

Market Report

The latest Cushman Wakefield/NorthMarq Compass report pegged Twin Cities retail vacancy at 7.8%, a new five-year low. That number was down from 8.3% at the end of 2012, and is the latest sign that Twin Cities real estate in multiple sectors is closing on pre-recession strength. Retail absorption by large tenants was strongest among specialty grocers like Whole Foods, fitness centers, and value-oriented retailers such as Walmart, Fleet Farm, and TJ Maxx.

According to CoStar‘s Second Quarter 2013 Market Report, over the past four quarters 983,000 square feet of retail space has been built in the Twin Cities. In addition, there were over 650,000 square feet of retail space under construction at the end of the second quarter 2013. Total retail inventory in the Twin Cities market area was just shy of 200,000,000 s.f. in over 16,000 buildings.

Some of the notable 2013 retail space deliveries included 19,200 s.f. of new space at Lyndale Station in Richfield, where Wellington Management also recently completed a 45,000 s.f. facility for Lifetime Fitness. Also completed was a 16,000 s.f. location for discount grocer Aldi off I-94 in Maple Grove. Some notable leases signed during the last quarter include Nordstrom leasing 138,000 of space at Ridgedale Center, a 26,000 s.f. deal for Marshall’s off I-494 in Bloomington, and a 26,000 s.f. of space for TJ Maxx on University Avenue in St. Paul.

Source: Cushman Wakefield/NorthMarq and CoStar

Real Estate Trends, Retail Real Estate, Think Outside The Box

Storefront Links Short-Term Space with Pop-Up Shops

Storefront, a San Francisco-based startup, describes itself as a marketplace for short-term retail space. The company helps small businesses find retail space for temporary “pop up shops,” typically for periods of a few weeks. Storefront facilitates the process by listing available short-term spaces, a flexible booking system, and a streamlined legal process with standardized lease and insurance agreements.

Storefront does not charge commission on their lease transactions. Instead, the company’s revenue comes from referral fees charged on purchases that it facilitates after space has been leased, such as for fixtures, signage, insurance, and temporary staff.

Much of Storefront’s success has come through providing temporary space for established online retailers. Their reasons for establishing short-term “offline” stores vary. Some  use temporary stores as a way to increase connectivity with customers and build their brands. Others use temporary stores to test new markets without the long-term commitments and expenses associated with a traditional lease.

Storefront founders and Minnesota natives Erik Eliason and Tristan Pollock were motivated to start the company after learning of friends’ difficulties in transitioning from online retail sales to brick and mortar locations. In an interview with Inc., Eliason and Pollock noted that despite the fast growth in online retailing, offline retail still has advantages such as tactile experiences and the opportunity to build deeper relationships with customers.

Since starting up in December of 2012, Storefront has already brokered over 3 million square feet of space for more than one hundred tenants. Earlier this summer, the company raised $1.6 million in venture capital to fund expansion. Storefront recently launched in New York City where it already has 100 spaces listed. Additional expansion are planned in the future. According to Eliason, Storefront hopes to “make opening an offline store as easy as an online store. That’s our overarching goal.”

Real Estate Trends, Retail Real Estate

Retail Macro Trends in 2013

A report by ChainLinks Retail Advisors highlights some of the major trends currently impacting national retail real estate. The 2013 U.S. National Retail Report notes that retail expansion is being shaped by two trends in particular: the impact of e-commerce and bifurcation due to a weakening middle class consumer segment. The impact of e-commerce on bricks-and-mortar retailers will continue to grow. The report predicts that this trend will lead to a long-term change in shopping center tenant mixes, with more dining and entertainment and fewer hard goods retailers.

Stagnant middle class growth is the reason for the second major trend, which is of increasing bifurcation in the retail market. Mid-price point stores will see limited growth while luxury and discount retailers will continue to expand. On the discount side, national dollar store chains are growing aggressively and are making their mark in the net lease investment market. Dollar stores are occupying more and more freestanding locations, and offer an alternative to investors struggling to land a net lease drug store or fast food tenant. Dollar General and Family Dollar each plan to open at least 500 new stores in 2013. The report predicts that dollar stores will account for at least 15 million square feet of occupancy growth nationwide this year.

Planned Retailer Growth in 2013 (image: ChainLinks Retail Advisors)

Planned Retailer Growth in 2013 (image: ChainLinks Retail Advisors)

The report examines retail categories which are most likely to expand and contract in the coming years. Restaurants account for nearly half of planned retail growth for the year. Grocery retailers will also expand, and competition for that market is particularly  Continue Reading

Real Estate Trends, Retail Real Estate

Sears Converting Empty Stores to Data Centers

Sears, one of the country’s most embattled retail giants, is now looking at converting its empty (or soon to be empty) stores into data centers. Once a dominant mid-range department store, the company has not been able to keep up with competition from online retail and fast-growing discount big boxes like Target and Wal-Mart. Sears Holding Corp, which also owns K-Mart, lost almost $1 billion in 2012 and is sitting on a portfolio of over 3,200 properties with 25 million square feet of space. The portfolio includes over 300 closed Sears and K-Mart stores, with many more locations likely to close in the coming years.

In an effort to reposition these owned real estate assets, Sears has launched a new business unit called Ubiquity Critical Environments. Ubiquity will analyze the company’s huge portfolio of properties to identify opportunities to build across three lines of business: data centers, communications colocation, and disaster recover sites. The new business unit will be led by Sean Farney, who built and managed a 700,000 s.f. data center for Microsoft in Chicago. According to a data center industry news source, Ubiquity will be able to leverage real estate at both closed stores and some that are still operating. The first step has been to conduct a “data center fitness test” to identify properties that could work well as data centers. Chicago engineering firm ESD has been hired to conduct the evaluation. Factors such as availability of sufficient power and data connections as well as risk profiles all play a role in determining wether or not a closed retail store could work as a data center.

This Sears store in Chicago will be one of the first to be converted to a data center (photo: Ubiquity)

The first Ubiquity project will be a Sears store on the south side of Chicago. The 127,000 square foot store is closing this summer and will be retrofitted as a multi-tenant data center. Ubiquity already has a commitment for the first tenant at the site. The buildings’ excellent fiber and power connectivity made it a great candidate for data center conversion.

Sears’ effort to convert empty stores into data centers follows a national trend in which owners of retail properties are seeking non-traditional tenants to fill a increasing inventory of closed big-box and department stores. Sears, Best Buy and other retailers are in the midst of store closing/consolidation programs that have yet to take full effect. In total, the volume of closures by retail store chains is expected to be about 50 million square feet in 2013 across the U.S., according to Property and Portfolio Research.

Retail Real Estate

Retail Rents Growing for First Time Since 2008

A recent report by CoStar indicates that quoted asking rents have increased across all retail property types in the U.S. for the first time in five years. During the first quarter of this year, 70% of U.S. retail markets had positive rent growth, indicating a turnaround for a market segment that has been slow to recover for many years. Growth in retail demand was strongest in western markets like Dallas, Denver, Phoenix, and San Diego.

Challenges remain for retail real estate, however. Although rent growth was positive, it was nevertheless slow and is unlikely to increase substantially anytime soon. Net retail absorption nationwide in the first quarter was 17 million s.f., down from from the year before. Many retailers have continued to shed stores and consolidate to the strongest locations. Demand for power centers is especially threatened as “category killer” retailers like Best Buy and Staples face increasing competition by Amazon and other online retail. In fact, Susan Mulvee of Property & Portfolio Research predicted that within many power centers will go dark within 10 years.

On the investment side, the single-tenant net lease market in retail properties with national credit tenants is going strong.  Brain Capo of Marcus & Millichap’s Orlando office indicated that triple-net deals are not lasting long on the market. Capitalization rates have compressed by 50 basis points in the last two months, with numbers approaching the pre-recession boom.

Retail Real Estate

Target Expands to Western Canada

Local retailer Target expands their reach from Ontario to western Canada.

Photo Credit: Smart Canucks

Photo Credit: Smart Canucks

Target announced this week 22 new stores will open in British Columbia, Alberta, and Manitoba on May 7 as well as 2 more stores on May 14. As previously announced, Target plans to open 124 stores across Canada throughout 2013.

In a May 6 press release, Tony Fisher, president of Target Canada, remarked “Target is thrilled to be opening stores in Western Canada, providing a one-stop shopping destination that meets the wants and needs of our guests. It was exciting to see the response to our Ontario store openings, which have produced valuable insights that along with our soft openings in Western Canada will help us to continue to deliver on Target’s Expect More. Pay Less. brand promise for guests across Canada.”

In addition to exclusive Target brands such as Circo, Archer Farms, Market Pantry and up & up; Target Canada will feature limited time collaborations with Roots and Sam & Libby footwear. Target plans to feature on-going collaborations as well.

Commercial Real Estate, Development, Economics, Investment Real Estate, Multifamily, Office Real Estate, Real Estate Trends, Retail Real Estate

AIA: Architecture Billings Index increases, Strongest Growth since 2007

In another sign of improvement in commercial real estate the Calculated Risk blog in a recent posting notes a continuing increase in the AIA Architecture Billings Index.  When architects get busier that usually indicates an increase in new construction is not far behind.

Arch. BillingsNote: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Architecture Billings Index Continues to Improve at a Healthy Pace

With increasing demand for design services, the Architecture Billings Index (ABI) is continuing to strengthen. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 54.9, up slightly from a mark of 54.2 in January. This score reflects a strong increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 64.8, higher than the reading of 63.2 the previous month – and its highest mark since January 2007.

Conditions have been strengthening in all regions and construction sectors for the last several months,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Still, we also continue to hear a mix of business conditions in the marketplace as this hesitant recovery continues to unfold.”

• Regional averages: Northeast (56.7), Midwest (54.7), West (54.7), South (52.7)

• Sector index breakdown: multi-family residential (60.9), mixed practice (56.9), commercial / industrial (53.3), institutional (50.7)
emphasis added

This graph shows the Architecture Billings Index since 1996. The index was at 54.9 in February, up from 54.2 in January. Anything above 50 indicates expansion in demand for architects’ services.

Every building sector is now expanding and new project inquiries are strongly positive (highest since January 2007). Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an “approximate nine to twelve month lag time between architecture billings and construction spending” on non-residential construction.  This index has been positive for seven consecutive months and suggests some increase in CRE investment in the second half of 2013.