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The Lee Retail Brief
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2014
1
LEE OVERVIEW
2
NATIONAL OVERVIEW
3
KEY MARKET SNAPSHOTS
4
SIGNIFICANT TRANSACTIONS
5
NATIONWIDE LEE OFFICES
1
Lee & Associates Overview
100%
$7.9 billion
778
in transaction
volume over 5 years
2013
and growing
nationwide
increase
transaction volume
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NATIONWIDE
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National Economic Overview
The US retail property sector continued to improve in the third quarter. Of the 12.5 billion square feet of retail
space across the country, just 6.3% of it stood vacant at the end of the third quarter, down 10 basis points
from Q2 and 30 basis points compared to year-end 2013. Net absorption rose to 26,500,000 square feet
in Q3, surpassing Q2’s performance by just under 4,000,000 square feet. As a result of consistent growth in
occupied space, rents are also moving up. The average asking rental rate for Q3 was $14.84, up 1.7% from
a year ago. Construction, which slowed dramatically after the financial crisis in 2008, is also back on track.
In the past four quarters, over 58 million square feet of retail space has been added to total inventory, and
there is another 53 million still under construction. Though the aggregate numbers are favorable, properties
in secondary locations are still struggling to get back on track, as sluggish wage growth and increased focus
on debt reduction have combined to change spending habits. The strong performance of dollar stores and
supercenters is a direct result of the American shopper’s increasing demand for and expectation of value at
a lower price point.
For years there has been concern over the future of brick and mortar retailers due to a shift to online shopping. To be sure, the rising tide of online spending for retail products has had a huge impact on shopping
behavior. However, shoppers often get their research done on line to narrow down their choices, but still want
to see and compare before they buy. In response, innovative retailers, heavily invested in brick and mortar
locations are investing in “omni-channel retailing”, a strategy that seeks to combine physical locations and
online presence into one seamless system supported by more efficient logistics, rather than have customers
experience their brands as separate components. Online retail leaders are getting into the act by opening up
physical locations of their own for the same reason.
Investor interest in retail is also on the upswing. Cap rates are coming down as competition for quality centers
increases. In many markets, pricing has hit pre-recession levels for well-positioned properties. Here again,
the market is somewhat bifurcated, as centers in secondary locations are garnering much less attention from
investors. Overall, the retail sector is just 8.5% of the previous price peak.
Vacancy Rate 2006 - 2013
12%
11%
Vacancy Rate
10%
9%
8%
7%
6%
5%
4%
3%
2%
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q
Power Center
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Net Absorption1
30.0
Specialty Center
LEE OVERVIEW
General Retail
2 NATIONAL OVERVIEW
Shopping Center
3 KEY MARKET SNAPSHOTS
Mall
4 SIGNIFICANT TRANSACTIONS
Total Market
5 NATIONWIDE LEE OFFICES
V
2%
6%
5%
2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013
1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q
Power Center
4%
2
Specialty Center
General Retail
Shopping Center
Mall
National Economic Overview
Total Market
3%
Millions SF
2%
Net Absorption
2006 2006picture
2006 2007 2007
2007 2008 2008 somewhat,
2008 2008 2009 2009
2009 2009
2010 2010 2010
2011 2011at
2011
2011 2012
2012 2012 2012
2013per
2013 month
2013 2013
The job2006
growth
has2007
brightened
with
the2010
economy
netting
least
200,000
jobs
30.0
1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q 1q 2q 3q 4q
26.48
throughout the third quarter. Wage growth is another story, however, as only markets heavy
in technology and
Power Center
Specialty Center
General Retail
Shopping Center
Mall
Total Market
24.84
24.39
energy production
over
the sustainability of the
economic
25.0 are seeing significant increases in wages. Concerns
23.59
22.54
recovery and the unknown impact off the Affordable Care Act, have many retailers hiring workers part time.
19.07
20.0
Net Absorption
18.92
30.0
15.0
26.48
11.47
24.84
25.0
10.0
Millions SF
16.79
24.39
20.0
5.0
19.07
18.92
16.79
15.0
0
10.0
23.59
22.54
2012
11.47
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
5.0
0
Recent Deliveries by Project Size of Year-to-Date Development
Building Size
< 50,000 SF
50,000 SF - 99,999 SF
# Bldgs
GLA
SF Leased
% Leased
Avg Rate
Single-Tenant
Multi-Tenant
2,601
24,944,135
21,066,338
84.5%
$25.32
12,419,072
12,525,063
123
8,567,415
7,925,183
92.5%
$25.05
4,274,627
4,292,788
96.6%
% Leased
$12.22
Avg Rate
7,084,016
Single-Tenant
5,757,630
Multi-Tenant
Recent Deliveries by Project Size of Year-to-Date Development
100,000 SF - 249,999 SF
Building Size
87
# Bldgs
12,841,646
GLA
12,401,048
SF Leased
250,000
< 50,000SF
SF- 499,999 SF
6
2,601
1,939,852
24,944,135
1,475,553
21,066,338
76.1%
84.5%
$0.00
$25.32
289,522
12,419,072
1,650,330
12,525,063
3
123
1,913,500
8,567,415
1,590,885
7,925,183
83.1%
92.5%
$0.00
$25.05
628,000
4,274,627
1,285,500
4,292,788
87
12,841,646
12,401,048
96.6%
$12.22
7,084,016
5,757,630
>=
500,000
50,000
SF - SF
99,999 SF
100,000 SF - 249,999 SF
A 250,000
LOOKSFAHEAD.
money
to spend and
confidence
to borrow,
American consumers,
who
con- 499,999 SFWithout more
6
1,939,852
1,475,553
76.1%
$0.00
289,522
1,650,330
tribute over two-thirds of GDP, will increase their spending at a tepid pace. However, retailers who succeed
500,000 SFto the new shopping
3
1,590,885
83.1% Careful
$0.00
628,000 the investment
1,285,500
in>=adapting
and 1,913,500
spending habits
will fare best.
balance between
in brick and mortar locations and online presence will be a must going forward, as it is now apparent that
one without the other is not a winning strategy. Retailers firmly entrenched with physical locations may have
the upper hand over online operations who have yet to establish visibility in local markets. Until wage growth
really picks up the pace, retail centers in areas with weaker demographic profiles will not fare as well as those
in markets generating higher paying jobs. Vacancy will continue its slow decline, but it will reach critically
low levels in top locations, as more aggressive retailers scramble to secure the best space. The wild card as
it relates to the health of the retail sector is the Federal Reserve Bank. Most expect the central bank to begin
ratcheting up rates by the middle of 2015, as it attempts to soft-land the economy after five years of intense
monetary stimulus. Higher interest rates will eat into consumer spending as debt service will rise for existing
loans and new purchases.
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Key Market Snapshots
EAST
MIDWEST
WEST
SOUTH
SOUTHWEST
To view a key market snapshot either click on a section of the interactive map above or on the cities below.
ORANGE COUNTY
DALLAS / FORT WORTH
INDIANAPOLIS
ATLANTA
NEW YORK
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Key Market Snapshots
ORANGE COUNTY OVERVIEW
The improving economic fundamentals of Orange
County are helping the retail sector on its return to
pre-recession health. A net increase of nearly 33,000
new jobs is forecast for the year.
Net Absorption
Past 7 Quarters
Net Absorption
7.0
601,562
6.0
Millions SF
5.0
397,113
4.0
350,961
3.0
250,685
208,649
2.0
108,174
1.0
0
(-64,936)
(-1.0)
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
Vacancy Rate
2014
Q2
2014
Q3
Past 7 Quarters
Vacancy Rate
7.0%
6.0%
5.8%
5.7%
5.4%
5.2%
5.2%
4.9%
5.0%
Unemployment dipped to 5.4% by mid-quarter, almost
200 basis points under the statewide rate. New jobs in
the tech, business services, education, and healthcare
sectors are helping generate the disposable income
necessary to keep the retail recovery on track.
Combined sale and lease activity for Q3 came in at
1.2 million square feet, which is less than Q2, but
that was mainly attributable to a lack of supply rather
than weak demand. Vacancy went down again in Q3,
decreasing the benchmark rate to a scant 4.74% by
quarter’s end, a post-recession low. However, that vacancy is concentrated in secondary locations.
As expected, increased competition for the remaining
quality space has rents moving up. The average asking lease rate year-over-year rose .72 cents to $22.56.
Net absorption, now on the positive side in eight of the
last nine quarters, came in just under 220,000 square
feet.
4.7%
Conditions vary widely throughout the county due to
much higher rents in coastal submarkets and areas
surrounding key entertainment venues.
4.0%
3.0%
2.0%
1.0%
0%
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
4.7%
$22.83
250,685
141,005,883
1,060,630
VACANCY
AVG. SF RENTAL RATES
NET SF ABSORPTION
RETAIL SF INVENTORY
SF UNDER CONSTRUCTION
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Key Market Snapshots
ORANGE COUNTY OVERVIEW
(continued)
Opportunities
Challenges
Tenants:
• Service retail and restaurant operations will be
able to locate near greater population density
resulting from new multi-family projects.
• Retail spending increases are likely due to
higher employment.
Buyers:
• Lower leasing risk due to improving vacancy
picture.
• Prospects for further rent growth are good.
Landlords:
• Net operating income growth through higher
rents.
• Fewer concessions required to secure good
credit tenants.
Sellers:
• Cap rates have compressed.
• Rent growth potential is increasing buyer competition for retail investments.
Developers:
• Lower leasing risk due to strong demand.
• Moderate pace of new development will reduce
competition to secure quality tenants.
Tenants:
• Choice of quality locations is diminishing.
• Rents are moving up faster in primary locations.
Buyers:
• Cap rates are very low, especially for singletenant NNN deals.
• Cost of capital could rise substantially as soon
as Fed makes a move on interest rates.
Landlords:
• Shop space in secondary centers will remain
difficult to lease.
• Downsizing and consolidation from some major
retailers threatens to create localized vacancy
spikes.
Sellers:
• Competition for suitable exchange alternatives.
Developers:
• Shortage of land sites is a barrier to entry.
• High land costs for remaining sites requires
mixed use approach, limiting the amount of
pure retail space that can be built.
A LOOK AHEAD. With modest development activity concentrated in just a few signature projects, new construction will remain in check, which will force vacancy even lower over the next several quarters. However, the
bulk of the vacancy will be in shop space in secondary locations. The continuation of job growth across multiple
sectors will buoy the housing market. In particular, multi-family residential developments, built by major market
players like the Irvine Company, will create more retail demand near those projects. Net absorption will remain
positive, but could be slowed down by a lack of quality product offered for lease. As a result, rent growth should
continue on its present trajectory.
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Key Market Snapshots
DALLAS / FORT WORTH OVERVIEW
The Dallas/Fort Worth (DFW) metropolitan area is
teeming with economic activity. Driven by a statewide
pro-business tax and political environment, DFW’s
economy has outperformed nearly every major market. As a consequence, the population in Dallas has
boomed.
Net Absorption
Past 7 Quarters
It is the single biggest economic driver and its effects
on the DFW retail sector can be seen in many ways.
Pad sites and retail corners are selling at a higher price
per square foot; the restaurant industry is expanding
and online sales are up dramatically.
Net Absorption
3.5
3.0
Millions SF
2.5
2.0
1.5
1,262,357
1,357,992
1,332,384
1,376,270
907,782
1.0
1,118,387
914,776
0.5
0
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
Vacancy Rate
2014
Q2
2014
Q3
Past 7 Quarters
Vacancy Rate
8.0%
7.8%
7.0%
7.6%
7.5%
7.3%
7.2%
7.1%
6.9%
6.0%
Lease rates are also up and the improved conditions
have eased loan underwriting criteria and given a
boost to consumer confidence.
Net absorption was positive again in Q3, coming in
just over 914,000 square feet, slightly less than the
1,118,000 square feet absorbed in Q2, but greater
than the 907,000 square feet absorbed in Q1. Winco
Foods led the way in the third quarter by moving into
over 92,000 square feet on N. Graves Street. Q3’s
performance also marks the fourth consecutive quarter
of decline in the vacancy rate, which now stands at just
6.9%.
5.0%
Rents moved higher, with the average asking lease rate
for the sector in Q3 settling at $14.08 PSF, up 3.62%
year-over-year.
4.0%
3.0%
2.0%
1.0%
0%
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
6.9%
$14.08
914,776
386,412,942
576,007
VACANCY
AVG. SF RENTAL RATES
NET SF ABSORPTION
RETAIL SF INVENTORY
SF UNDER CONSTRUCTION
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Key Market Snapshots
DALLAS / FORT WORTH OVERVIEW
(continued)
Opportunities
Challenges
Tenants:
• Tenants willing to commit to longer term leases
will benefit given current pricing structures.
Buyers:
• Owner/user buyers will have to compete for
good assets, but successful bidders will fix occupancy cost before the Federal Reserve makes
a move on interest rates.
Landlords:
• Concessions are declining as tenants compete
for space in a market with lower vacancy.
Sellers:
• More competitive bidding is moving prices up
to pre-recession levels.
Developers:
• Rent growth and leasing activity expected to
continue.
Tenants:
• Some tenants are willing to take additional
space to keep competitors from securing prime
locations.
Buyers:
• Purchases are harder to justify as buyers face
low CAP rates.
Landlords:
• As newer product comes on line, landlords of
existing product will face stronger competition
for good credit tenants.
Sellers:
• Sellers trying to time the market peak will have
to hold properties for the near term.
Developers:
• Construction costs continue to rise as residential developers compete against commercial
developers for the labor and resources needed
to complete projects.
A LOOK AHEAD. Given current trends, DFW will maintain its status as a boom market, outperforming any of
its comparably-sized metro rivals. Expect sale and lease activity to remain brisk for the next 24 months. Net absorption should track on its present course through 2015. Vacancy will continue its slow decline, and sales prices
and lease rates will move higher for the next several quarters. Construction and new deliveries will be sustained
by current levels of demand. Perhaps the only thing that could significantly affect current market momentum in
the DFW market would be a rise in interest rates resulting from a move by the Fed to reverse its easy money
policy, which many believe will begin by the middle of next year.
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Key Market Snapshots
INDIANAPOLIS OVERVIEW
The Indianapolis retail sector is tightening up. Leasing activity continues to strengthen and vacancy has
fallen by 50 basis points from this time last year to a
healthier 7.0%. Rents have risen across the board, and
now exceed pre-recession levels in 10 of the region’s
17 submarkets.
Net Absorption
Past 7 Quarters
Net Absorption
7.0
6.0
561,074
Millions SF
5.0
4.0
3.0
248,026
2.0
181,277
136,102
71,776
1.0
0
238,254
(-21,304)
(-1.0)
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
Vacancy Rate
2014
Q2
2014
Q3
Past 7 Quarters
Vacancy Rate
Net absorption is up, as well. In the third quarter, growth
in occupied space rose by 238,254 square feet.
A big increase in multi-family development downtown
has encouraged retailers and restaurants to secure
new locations to meet the increase in demand from
‘millennials’ who are opting to move into the amenityrich central business district that offers good employment opportunity, convenience and a more contemporary life style.
The grocery sector is also a strong contributor to market activity. Krogers, Walmart, Fresh Thyme, Whole
Foods, Aldi and Giant Eagle are expanding their footprints throughout the region. Fitness centers and fast
casual restaurants are also becoming more active.
8.0%
7.0%
7.6%
7.5%
7.5%
7.4%
7.3%
7.1%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Major lease signings in 2014 include the 92,000
-square-foot lease to Weekends Only and the
29,979-square-foot lease inked by Fresh Thyme. All
this good news is not lost on investors, as their interest
in retail investment properties is rising, as well. Cap
rates are still above many other major metro areas
around the country and the prospects for long term
rent growth are favorable.
1.0%
0%
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
7.0%
$12.33
238,254
119,365,730
140,331
VACANCY
AVG. SF RENTAL RATES
NET SF ABSORPTION
RETAIL SF INVENTORY
SF UNDER CONSTRUCTION
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Key Market Snapshots
INDIANAPOLIS OVERVIEW
(continued)
Opportunities
Challenges
Tenants:
• For those willing to wait, redeveloped space in
core markets could become available.
Buyers:
• Rising rents and lower vacancy is creating add
value opportunities in well-located older centers.
• Investors can still buy at cap rates above other
major metro areas around the country.
Landlords:
• Falling vacancy is keeping pressure on rents to
rise.
• Lack of development activity forcing tenants to
lease existing product, which is accelerating the
vacancy decline.
Sellers:
• Strong investor interest from both coasts and
international investors is creating competitive
bidding for retail assets.
Developers:
• Tightening market indicates long term rent
growth, making new and redevelopment projects more feasible.
Tenants:
• Good locations with optimum co-tenancies are
getting harder to find.
• Prime submarkets have hit pre-recession rent
levels.
Buyers:
• Competition between investors requires more
aggressive underwriting.
• Considerable leasing risk remains in non-core
submarkets.
Landlords:
• Concessions still required to get spaced leased
in unanchored centers.
• Sluggish rent growth and leasing activity in
non-core submarkets.
Sellers:
• Sellers could be forced to exchange into alternate markets with lower cap rates due to lack
of local supply.
Developers:
• Stifling prelease requirements from lenders are
delaying new projects.
• Construction costs are moving up.
A LOOK AHEAD. Overall sale/lease activity and net absorption will remain strong into next year, but may
moderate in 2015 more due to lack of supply than demand. Tenants will face increasing competition for quality
space and investors looking to acquire retail projects will be bidding up prices as multiple offer scenarios will become the norm. The vacancy rate will decline overall, but the disparity in vacancy will vary widely by submarket.
Look for grocery and fitness center operators to continue their expansion, especially in proximity to new multifamily projects. Lease rates will rise as much as 8% in 2015, and until construction really gets going in earnest, that
trend should continue. Some relief may be in sight, as several projects are slated for completion late in 2015.
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Key Market Snapshots
ATLANTA OVERVIEW
Retail activity in the Atlanta area is heating up again,
especially in more urbanized areas near the city. Population increase within the city’s perimeter is driving
new demand for retail/multi-family mixed use developments from ‘millennials’ looking to achieve a livework-play lifestyle within walking distance.
Net Absorption
Past 7 Quarters
Net Absorption
1.4
1,337,251
1.2
1,138,808
988,073
Millions SF
1.0
961,207
836,826
0.8
766,642
0.6
0.4
242,540
0.2
0
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
Vacancy Rate
2014
Q2
2014
Q3
Past 7 Quarters
Vacancy Rate
12.0%
10.1%
10.0%
9.8%
9.7%
9.4%
9.0%
8.9%
8.8%
8.0%
6.0%
Like the office and industrial sectors, Atlanta’s retail
market is experiencing rising rents, stronger net absorption and declining vacancy. Average asking rents
in the area hit $12.78 by the end of Q3, supported by
net absorption of 836,826 square feet. The vacancy
rate dipped to 8.80%, down from 9.8% this time last
year. Areas like Buckhead, Midtown, Castleberry Hill
and the Old 4th Ward are seeing a bigger share of
the action.
Interest from grocery operations is strong, as evidenced
by Sprouts and Walmart Neighborhood Market’s aggressive expansion in the Atlanta market. However,
despite the surge in activity and greater access to capital, retail development has been modest, mainly concentrated in mixed use projects. IN addition, suburban
submarkets have not fared as well, as retailers opt for
the improving demographics closer in.
Much of the product classified as distressed tends to be
in outlying suburban areas. Shannon Mall, a regional
center in Union City, Georgia was recently purchased
through a bankruptcy proceeding for redevelopment
as an industrial park. Investor demand has also picked
up.
Cap rates are lowest for anchored centers in urban
locations, while those for non-anchored strip centers
have been slower to recover.
4.0%
2.0%
0%
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
8.8%
$12.78
836,826
348,594,100
880,302
VACANCY
AVG. SF RENTAL RATES
NET SF ABSORPTION
RETAIL SF INVENTORY
SF UNDER CONSTRUCTION
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Key Market Snapshots
ATLANTA OVERVIEW
(continued)
Opportunities
Challenges
Tenants:
• Service retail and restaurants have good opportunity to capitalize on growth of the millennial population.
• Lease rates are still below previous peak.
Buyers:
• Likelihood of continued rent growth and lower
vacancy will boost net operating income.
• Those who buy sooner rather than later will
benefit from further cap rate compression.
Landlords:
• Consistent rent growth.
• Best locations seeing rent spike above market
average.
Sellers:
• Cap rates have moved lower.
• Investor interest from institutional and foreign
investors is strong.
Developers:
• Land prices still low enough to underwrite new
projects at today’s rents.
• Joint venture opportunities with multifamily
builders.
Tenants:
• E-commerce competition is getting stronger.
• Choice of quality product is diminishing in
urban locations.
Buyers:
• Increase in leasing risk due to potential downsizing from major tenants like Barnes & Noble
and Staples.
• Credit risk with marginal shop tenants.
Landlords:
• Number of quality shop tenants on the decline.
• Vacancy in shop space affecting ability to refinance existing centers.
Sellers:
• Low cap rates in exchange upleg properties.
• Tax consequences of outright sale.
Developers:
• Limited availability of developable sites.
• Competition for sites will drive land prices up at
faster pace than rent growth.
A LOOK AHEAD. Atlanta’s retail market has come a long way off its recessionary low, but challenges still
remain. Demand is strongest in more urban areas, but land availability is low, which will keep development
near current levels for the next several quarters. Rents will continue to grow by 2% to 4% over the next year, with
prime locations closer to the city at the higher end of that range. Local tenants will face strong competition with
regional and national players for quality locations. Vacancy in shop space will remain a challenge until the overall economic recovery accelerates, which may occur after the uncertainty of the midterm elections is resolved.
Demand for multi-family units will stay strong, as will the retail component of urban mixed use projects. Vacancy
will decrease slightly over the next several quarters and net absorption will remain in the plus column. Shopping
center investment sales should continue, but actions by the Federal Reserve to move interest rates higher could
cause a corresponding rise in cap rates, which will discourage some sellers from disposing of retail assets.
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MANHATTAN OVERVIEW
Net Absorption
Past 7 Quarters
Net Absorption
0.75
0.5
32,345
Millions SF
0.025
(-98,116)
0.0
(-2,325)
(-8,493)
(-.025)
(-0.5)
(-40,008)
(-43,325)
2013
Q1
2013
Q2
(-42,993)
(-0.75)
(-0.1)
2013
Q3
2013
Q4
2014
Q1
Vacancy Rate
2014
Q2
2014
Q3
Past 7 Quarters
Vacancy Rate
3.5%
3.3%
2.9%
3.0%
2.5%
2.9%
3.0%
3.1%
2.8%
2.6%
Manhattan’s retail sector is heating up as New York’s
economy strengthens and more jobs are created. In
August, New York City’s unemployment rate dipped
50 basis points from July, to 7.3%, the lowest it has
been since December 2008. Year-over-year private
sector employment has added 105,400 jobs, 15,200
of which were in retail, a 4.5% increase for the sector.
This is reflective of the strengthening national economy, as GDP increased to 3.5% in the third quarter.
Manhattan’s population of 1.6 million residents combined with 54 million visitors to spend approximately
$33.4 billion on goods, services and dining in 2013.
Household income, averaging over $115,000, is expected to reach nearly $142,000 by 2019. That has
encouraged luxury retailers to maintain a strong presence in Manhattan’s upscale retail areas. Neiman
Marcus recently signed a lease for 250,000 square
feet at Hudson Yards in Midtown, while Saks Fifth Avenue committed to 86,654 square feet at 225 Liberty Street. In September, Microsoft signed a lease
for 5,000 square feet for its first Manhattan flagship
store. The tech giant is taking over a former Fendi location between 53rd and 54th, and is set to open in
2015. With rents averaging an astonishing $3,550
per square-foot, the northern portion of Fifth Avenue,
between 49th and 59th, is the priciest retail corridor in
New York City.
2.0%
Net absorption, flat during Q3, was hampered by the
low supply of vacant space rather than a lack of interest from expanding retailers.
1.5%
1.0%
0.5%
0.0%
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
3.3%
$95.27
-2,325
52,088,708
732,554
VACANCY
AVG. SF RENTAL RATES *
NET SF ABSORPTION
RETAIL SF INVENTORY
SF UNDER CONSTRUCTION
* Average Direct SF Rental Rates
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NEW YORK OVERVIEW
(continued)
Opportunities
Challenges
Tenants:
• Service retail and restaurant operations will be
able to locate near greater population density
resulting from new master planned communities such as Hudson Yards.
Buyers:
• Excellent prospects for further rent growth.
Landlords:
• Financially secure landlords have the capacity
to let space remain vacant if they desire a particular type of retailer or to create a particular
shopping experience.
Sellers:
• Strong investor interest is creating competitive
bidding for retail assets.
• Patient sellers should see prices rise as demand
continues to increase.
Developers:
• Mixed use approach that combines residential
and office components with retail space will
generate higher rents.
Tenants:
• Escalated rents are pushing out long-standing
tenants, such as furniture stores, art galleries,
and restaurants.
Buyers:
• Competition among investors is fierce.
• Cap rates highly compressed.
Landlords:
• Leasing space in tertiary markets is still difficult.
Sellers:
• Navigating the tax consequences of sales is
both tricky and onerous given the complexities
of NYC tax laws.
Developers:
• High land prices.
• Construction costs are rising.
A LOOK AHEAD. Vacancy will range from 2.6% to 3.5% for the rest of the year and into mid 2015. Net absorption will remain constrained by the lack of available space. Average asking lease rates will increase in most
submarkets, but may see declines in tertiary locations. Average asking sale prices will increase in Q4, as intense
demand from investors will keep cap rates low. Expect fitness centers, high-end casual food establishments,
and fashion brands to be the most active tenants. The several new residential and hotel developments under
construction or in the pipeline will become increasingly attractive to retailers.
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Significant Lease Transactions
BUILDING
SUBMARKET
SF
TENANT NAME
LANDLORD REP COMPANY
ATLANTA
100 Spalding Vlg
W Henry / Spalding
59,431
Hobby Lobby
RCG Ventures LLC
East Cobb Crossing
Town Center / Marietta
50,411
Dick’s Sporting Goods
The Shopping Center Group
LLC
Woodstock Square
Cherokee / Woodstock
45,028
Stars & Strikes
Ackerman & Co.
2200 Airport Fwy
Hurst / Euless / Bedford
60,000
Movie Tavern, LLC
Dunhill Partners, Inc.
Dalrock Crossing
Sachse/Rowlett
60,000
Walmart
Center Point Commercial
Properties
Dal-Rich Village
Richardson
50,031
Richardson Mercantile
The Weitzman Group
8315 Center Run Drive Castleton
92,000
Weekends Only
Sitehawk
8750 US Hwy 31 South
Greenwood
29,979
Fresh Thyme
Sitehawk
3736-3838 East 82nd
Street
Keystone Crossing
20,040
Lazy Boy
The Broadbent Company
The Shops & Restaurants
At Hudson Yards
Penn Plaza / Garment
250,000
Neiman Marcus
The Related Companies
225 Liberty Street
World Trade Center
86,654
Saks Fifth Avenue
Brookfield Office
Properties, Inc.
One Liberty Plaza
World Trade Center
54,564
Off 5th
Brookfield Office
Properties, Inc.
121 N Beach Blvd
North / East Anaheim
56,800
Walmart Neighborhood
Market
Newmark Grubb Knight
Frank; Colliers International
1021 N Tustin Ave Paci Center Anaheim
North / East Anaheim
47,277
Jerome’s Furniture
Lee & Associates
1975 E 17th St MetroPlace
Main Place Area
46,000
Hobby Lobby
Colliers International
DALLAS
INDIANAPOLIS
NEW YORK
ORANGE COUNTY
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Significant Sale Transactions
SHOPPING CENTER
PRICE
RBA
BUYER
SELLER
ATLANTA
The Shoppes at Webb
Gin
$87,040,000
327,913
Olshan Properties
Bayer Properties
The Shops Around Lenox
$71,750,000
124,966
RREEF Amercia REIT II, Inc
Healey Weatherholtz
Properties
The Prado
$68,400,000
305,976
North American Development
The Sembler Company
Ridgmar Mall
$60,900,000
1,234,297
GK Development, Inc
The Macerich Company
Town Center Colleyville
$30,560,000
138,290
Velocis Partners
C Hodges Development
Services, LP
Flower Mound Riverwalk
$29,000,000
91,800
RioCan Real Estate
Investment Trust
The Seitz Group, Inc.
Shadeland Station
$9,500,000
108,695
Time Equities
Tri-land Properties
Plainfield Commons III
$6,350,000
49,967
Providence Development
RPD Catalyst, LLC
Gander Mountain
$8,144,000
62,707
Realty Income Corp.
Indigan, Inc.
World Trade Center Retail $800,000,000
167,500
Westfield Corporation
The Port Authority of New York
& New Jersey
150 W 34th Street
$252,000,000
77,760
Starwood Capital Group
KLM Construction Corporation
401 W 14th Street
$70,560,000
25,200
TIAA-CREF
Clarion Partners
$15,100,000
77,867
Jennett Investment Company
Burnham USA Equities
1710-1730 E 17th Street $12,250,000
73,500
Super Center Concepts, Inc.
Hector A Regner Living Trust
2 Hutton Centre Drive
13,468
MacArthur Plaza LLC
Fried Asset Management, Inc.
DALLAS
INDIANAPOLIS
NEW YORK
ORANGE COUNTY
27200 Alicia Pkwy
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5
Nationwide Lee Offices
EAST
Arizona
Fred Darche
602.956.7777
Phoenix, AZ 85018
California
Clarice Clarke
805.898.4362
Santa Barbara, CA 93101
(Central Coast)
Brian Ward
760.346.2521
Palm Desert, CA 92260
(Greater Palm Springs)
SOUTHWEST
California (continued)
Don Kazanjian
909.989.7771
Ontario, CA 91764
Mike Furay
925.737.4140
Pleasanton, CA 94588
Mike Tingus
818.223.4380
LA North/Ventura, CA
Dave Illsley
951.276.3626
Riverside, CA 92507
Jeff Rinkov
323.720.8484
Commerce, CA 90040
(LA Central)
Dave Howard
760.929.9700
Carlsbad, CA 92008
(San Diego North)
Joe Chavez
213.623.1305
Los Angeles, CA 90071
(LA ISG)
Greg Gill
562.354.2500
Los Angeles - Long Beach, CA
Duncan Lemmon
310.899.2700
Santa Monica, CA 90404
(LA West)
Steve Jehorek
949.724.1000
Newport Beach, CA 92660
Christopher Bonney
562.699.7500
City Of Industry, CA 91746
Craig Hagglund
510.903.7611
Oakland, CA 94607
Missouri
Thomas Homco
314.400.4003
St. Louis, MO 63114
SOUTH
Bob Sattler
714.564.7166
Orange, CA 92865
John Hall
949.727.1200
Irvine, CA 92618
Michigan
Jon Savoy
248.351.3500
Southfield, MI 48034
MIDWEST
WEST
Steve Malley
858.642.2354
San Diego, CA 92121
(San Diego UTC)
Tom Davis
209.983.1111
Stockton, CA 95206
Dave Illsley
951.276.3626
Murietta, CA 92562
(Temecula Valley)
Nevada
Steve Spelman
702.739.6222
Las Vegas, NV 89119
Florida
Jerry Messonnier
239.210.7610
Ft. Myers, FL 33966
(Naples)
Lyle Chamberlain
775.851.5300
Reno, NV 89501
Tom McFadden
321.281.8501
Orlando, FL 32839
New Jersey
Rick Marchiso
973.475.7055
Elmwood Park, NJ 07407
Georgia
Dick Bryant
404.442.2810
Atlanta, GA 30326
New York
Jim Wacht
212.776.1202
New York, NY 10022
Idaho
Matt Mahoney
208.343.2300
Boise, ID 83703
Ohio
Brad Coven
216.282.0101
Beachwood, OH 44122
(Cleveland)
Illinois
Brian Tader
773.355.3050
Rosemont, IL 60018
(Chicago)
Indiana
Scot Courtney
317.218.1038
Indianapolis, IN 46240
South Carolina
Bob Nuttall
843.747.1200
Charleston, SC 29492
Randall Bentley
864.704.1040
Greenville, SC 29601
Don Brown
760.241.5211
Victorville, CA 92392
Kansas
Nathan Anderson
913.890.2000
Overland Park, KS 66211
(Kansas City)
Texas
Trey Fricke
972.934.4000
Addison, TX 75001
(Dallas/Fort Worth)
Colorado
John Bitzer
303.296.8500
Denver, CO 80202
Maryland
J. Allan Riorda
443.741.4040
Columbia, MD 21046
Wisconsin
Todd Waller
608.327.4000
Madison, WI 53713
*Please contact individual managers above for information in specific markets.
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The Lee Retail Brief
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The information and details contained herein have been
obtained from third-party sources believed to be reliable;
however, Lee & Associates has not independently verified its
accuracy.
Lee & Associates makes no representations, guarantees,
or express or implied warranties of any kind regarding the
accuracy or completeness of the information and details
provided herein, including but not limited to the implied
warranty of suitability and fitness for a particular purpose.
Interested parties should perform their own due diligence
regarding the accuracy of the information. The information
provided herein, including any sale or lease terms, is being
provided subject to errors, omissions, changes of price or
conditions, prior sale or lease, and withdrawal without notice.
2014
Third-party data sources: CoStar Group, Inc., The Economist,
U.S. Bureau of Economic Analysis, U.S. Bureau of Labor
Statistics, usgovernmentdebt.us, GlobeSt.com, Loopnet,
CoStar Property, Lee Propriety Data, and Cocky Rooster
Media. © Copyright 2014 Lee & Associates All rights reserved.