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Retail Real Estate, Think Outside The Box, Twin Cities Real Estate

Eagan Outlet Center to Feature Snow Melter

The new Twin Cities Premium Outlets center opening in Eagan next month will feature a unique piece of equipment to help manage snow in the winter. Rather than store snow on site or pay to have it hauled away, the property will use a stationary snow melter made by Trecan, a Canadian company which specializes in the design and manufacture of the machines. With capacity to melt 40 tons of snow an hour, the snow melter will help the property management keep the center’s sidewalks and 1,400 parking spaces accessible to customers during the winter months.

The snow melter at the new Twin Cities Premium Outlets in Eagan (source: MSP Business Journal)

The Trecan snow melter at the new Twin Cities Premium Outlets in Eagan (source: MSP Business Journal)

The Trecan machine melts snow that is dumped in by plows by mixing it with hot water heated by a natural gas burner. The snow melt then drains directly to the municipal storm sewer. A filter collects trash and other debris before it enters the sewer.

The Twin Cities Premium Outlet will be (surprisingly) the first shopping center in Minnesota to feature an on-site snow melter. It will also be the first in Simon Property Group’s portfolio of 300 shopping centers worldwide, although the company also plans to install one in a Montreal mall opening later this year.

By using the snow melter, Simon hopes to keep operating costs lower for tenants. The machine can melt 200 cubic yards of snow per hour at a cost of about $110, substantially less than the cost for haul away and off-site disposal of a comparable amount of snow. Additionally, because the property won’t need space for snow mounds the developer was able to build fewer parking spaces and keep more of them available for customers during the winter months.

The 409,000-square-foot outlet mall is set to open Aug. 14th and will have more than 100 stores. It was developed by Simon Property Group and Paragon Outlet Partners.

Retail Real Estate, Twin Cities Real Estate

Twin Cities Retail Vacancy at Lowest Point Since 2008

The latest Colliers Retail Market Report for the Twin Cities pegs vacancy at 5.2%, the lowest its been in six years. This continues the downward trend from a peak of 7.3% in 2010. Trade areas with the lowest vacancy included Ridgedale (0%), Rosedale (1.7%), and Eden Prairie (1.9%). The highest vacancy was in the Maplewood trade area, at 8.8%. Net absorption during the first quarter of 2014 was 168,000 square feet, setting pace to top the 2013 absorption of 432,000 s.f.

Minneapolis - St. Paul Retail Trade Area Vacancy (1st Quarter 2014, source: Colliers)

Minneapolis – St. Paul Retail Trade Area Vacancy (1st Quarter 2014, source: Colliers)

Leasing activity in the quarter was led by the opening of a 49,000 s.f. Hobby Lobby in Woodbury, its first store in the Twin Cities market. The Oklahoma-based arts and crafts retailer is also planning locations in Blaine and Maplewood in the coming months. Additional lease commencements included the 400 Bar’s relocation to 25,000 sf at the Mall of America, DSW Shoes’ new 18,000 sf location at Eden Prairie Center, and a Cost Plus World Market at Arbor Lakes (also 18,000 sf).

New construction openings included a 178,000-square-foot Walmart in Cottage Grove and a 17,000-square-foot Lunds Kitchen in Wayzata. Construction continued on the Paragon Outlet’s new center in Eagan, set to come online this Fall with 409,000 square feet of space. The center is expected to open 90% leased, with retailers Saks off 5th, Gap Outlet, and Michael Kors already signed. Construction also began this quarter on the Mall of Americas Phase 1C expansion, which will include 150,000 square feet of new retail space.

The Mall of America Phase 1C expansion will add 150,000 SF of retail space as well as a new hotel

Sales activity included the Ackerberg Group’s purchase of 177,00 sf Calhoun Square for $69.5 million. Addtionally, the closed downtown St. Paul Macy’s was bought by the St. Paul Port Authority for $3 milion, or about $8/sf. The property fetching the highest premium this quarter was a 14,500 sf Walgreens in Chanhassen, which sold for $8.5 million, or about $590/sf.

Going forward, Colliers expects continued strong absorption during the remainder of 2014, led by the opening of the outlet center in Eagan. The grocery sector will continue to be particularly active, with several national and local retailers all expanding, including Target, Walmart, Lunds, Whole Foods, Trader Joe’s, and Aldi. Also, Iowa-based Hy-Vee has announced plans to expand into the market, while Rainbow announced plans to close or sell many of its remaining Twin Cities locations.

Real Estate Trends, Retail Real Estate, Twin Cities Real Estate

Target to Test Small Format “Express” Store Concept

A New York Times article yesterday broke the news that Target has signed a lease for its smallest store ever. The 20,000 sf retail space is in an under-construction mixed-use development in the Dinkytown neighboorhood of Minneapolis. This summer, Target will roll out its first “Target Express” store at the site. At about a tenth the size of a typical Super Target, the Target Express will be the first of kind, and will feature a mix of grocery, pharmacy, and basic home goods.

TargetExpress

 

The experiment with smaller stores is part of an effort by Target to have a bigger presence in urban areas. According to John Griffith, Target’s vice president of property development, Target wants to remain convenient as more people decide to live in cities rather than suburbs. Mr. Griffith pointed out that many shoppers “grew up with a Target experience. Now, they show up at their cool little bungalow they’re redoing, they’re close to downtown, and yet Target is a little bit of an effort to get to.”

The location was chosen in part to capture on the surround University of Minnesota student market. However, Target also wanted something close to theird downtown Minneapolis headquarters, which will allow the company to easily monitor and experiment with the new concept prior to rolling out additional locations.

Target is somewhat late to the game in introducing a smaller urban format store concept. Major competitor Wal-Mart opened is first small-format “Wal-Mart Express” in 2011. It has since opened a handful of smaller-format stores that experiment with a variety of sizes, ranging from 40,000 sf “neighborhood markets” to a 3,700 sf location near the University of Missouri. Until now, Target’s smallest format has been CityTarget, stores that range from about 80,000 to 125,000 square feet.

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: http://www.costar.com/News/Article/Wal-Mart-Target-Roll-Out-Smaller-Urban-Store-Formats-to-Do-Battle-with-Dollar-Drug-Store-Rivals/152876?ref=100&iid=357&cid=FC4C5ECBFF14BCA42CFC3FCF0353A739

Commercial Real Estate, Industry News, Twin Cities Real Estate

Cap Rates Down as Investors Pursue Higher Yields in Twin Cities Real Estate

Commercial real estate investors are coming to the Twin Cities in pursuit of higher yields, pushing cap rates to 10-year lows. Rolling 12-month cap rates for office, industrial, and retail property in the Twin Cities dropped to 6.5% in June according to Cushman & Wakefield/NorthMarq, the first time overall Twin Cities rates have been below 7% since the early 2000’s. Annual sales volume was just over $2 billion, up from less than $0.5 billion in 2009 and 2010 but still well below the market peak of $4 billion in 2007.

The highest investor demand is found in core Class A properties in the Minneapolis CBD and top suburban submarket locations, where cap rates are in the 6-7% range. Average-quality suburban offices are currently trading at 8-9% cap rates, but are beginning to attract more investor interest. Other than premium Class A Office space, the most in-demand product types for investors are multi-family, grocery-anchored retail, retail power centers, and contemporary industrial (with 32-foot clearances and minimal office). The multifamily market is currently very attractive due to the Twin Cities’ average vacancy rate of 2.8%, among the lowest in the nation. Anticipating 3-5% rental rate growth over the next year, institutional investors are partnering on the development of new higher-end products as well as buying existing Class A properties.

CushWake predicts continued strong investment activity across all property types in the Twin Cities market over the second half of 2013. Retail transactions are expected to increase, as are multi-family as some of the many recently-constructed apartments come up for sale.

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.

http://www.youtube.com/watch?v=0VGK9napr4E#t=21

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

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.

Real Estate Trends, Retail Real Estate

Fewer Retailers Kicking the Can Down the Road

Few real estate sectors are as uncertain as retail these days. Retailers hit hard by the economic downturn are simultaneously dealing with rapid shifts in consumer shopping trends due to technological change. Many companies have closed unprofitable stores, but strategic uncertainty remains with regards to marginal stores that could become unprofitable in the near future. This uncertainty has resulted in an explosion in the number of short term lease renewals in recent years.

Fewer Retailers Are Kicking the Can (Source: CoStar)

Fewer Retailers Are Kicking the Can, But Uncertainty Remains (Source: CoStar)

Analysis by CoStar shows that the percentage of retail leases renewed for terms of 1 year or less skyrocketed from less than 3% to 20% between 2006 and 2010.  Renewals for terms of 2 to 5 years (not pictured) fell from a whopping 80% of all retail lease renewals in 2006 to just 50% in 2010. These trends show an increasing focus on avoiding long term commitments as retailers seek the flexibility to be able to right-size their real estate footprint should sales decline. Even long term renewals were often not as long as they once where; renewals for 10 years or more fell below 5%, while there was a slight increase in renewals for periods of 5 to 10 years.

The good news for retail real estate is that in the past year these trends have started to reverse. Renewals for terms of 1 year or less fell to 16% of total renewals, well down from the peak of 20%. Renewals for 2-5, 5-10, and 10+ years have all increased since the first quarter of 2012. However, uncertainty remains and more rounds of store closings are on the horizon for major retailers. While there are signs of recovery, it seems unlikely that retail real estate will regain its pre-2007 foothold in the near future.