It’s more than shopping carts and back-to-school clothes. Retail is big business, with a big impact. Measuring the ups and downs of retail means measuring the nation’s economic cycling as a whole, and of late, when the retail machine is running at a slower pace, the downturn is readily visible in the larger financial picture. Conversely, when retail stores see results, and turn to expansion, driving the real estate market, everything hums along with a very harmonic tune.
The statistics that define the retail industry’s impact on the economics of America are staggering. Consider:
• An estimated two-thirds of the U.S. gross domestic product (GDP) comes from retail consumption.
• According to the latest annual report from the U.S. Census Bureau (calendar year 2009), the total sales for the U.S. retail industry (including food service and automotive) was $4.13 trillion. And this represents a decline compared with the previous two years.
• According to the U.S. Bureau of Labor Statistics, 14.4 million people were employed in the U.S. retail industry as of April 2010, representing 12 percent of all U.S. employment.
• The nation’s largest employer, Walmart, employs more than 1.4 million people in the United States and 2.1 million worldwide, including more than 257,000 African-American associates; more than 41,000 Asian and 5,900 Pacific Islander associates; more than 171,000 Hispanic associates; more than 16,000 American Indian and Alaskan Native associates; more than 869,000 women; and more than 430,000 associates who are 50 and older.
Clearly, retail drives the nation. So how optimistic are retail brokers in Phoenix about the future of their business? In a word, very. On these pages, we offer the perspectives and predictions of 18 prominent, successful retail brokers.
Ed Beeh
Executive Vice President and Market Leader SRS Real Estate Partners
Years in industry: 22
Interests: Family, golf, skiing and hiking
Years in Arizona: 23
Business philosophy: “The Golden Rule” should apply to both work and personal life.
Number of retail square feet managed, leased or sold: leased/sold in excess of 2,885,000 SF of real estate in 2010.
Biggest deal: In this market, every deal is BIG.
Q. What is your forecast for this year’s retail real estate market, in terms of activity and overall health?
Ed: In 2011 we will see more leasing transactions, more properties will change hands and more financing will be available. Vacancy, however, will remain fairly constant because we will see a few more retailers going dark.
Q. What has been the biggest change you’ve seen in the retail leasing market in the past six months?
Ed: We have seen more lease transactions being completed in the last six months than the prior 18. This momentum, albeit slow, will gain more steam in the second half of 2011 and continue into 2012.
Q. What is pleasantly surprising to you right now about trends related to retail leasing?
Ed: The pricing gap between landlords/ seller and tenants/buyers has narrowed significantly. We are even seeing competition among users for property, which we haven’t seen in a while.
What’s the forecast for retail real estate in 2011?
• Construction to remain anemic for the next few years
• Opportunity abounds for outside entities to enter into the Arizona market
• Lender-owned properties will work through the disposition process at a faster pace
Source: the Cassidy Turley BRE Commercial
Retail Market Snapshot, Phoenix year-end, 2010
Mike Polachek
Executive Vice President, SRS Real Estate Partners
Years in industry: 38 years
Interests: Family, sporting events, working out
Years in Arizona: 40 years
Business philosophy: Trust in people and the world, as well as the business world, we’ll be better off
Number of retail square feet managed, leased or sold throughout career: More than 5 million SF.
Biggest deal: Macy’s Department Store and regional offices.
Q. What is your forecast for this year’s retail real estate market, in terms of activity and overall health?
Mike: We’re not out of the woods yet. With the recent closures of Borders, Blockbusters and Ultimate Electronics that has added over 400,000 sf to retail vacancy. Leasing activity will be stronger in 2011 and for the next several years going forward.
Q. What has been the biggest change you’ve seen in the retail leasing market in the past six months?
Mike: Increased level of activity and retailers again talking about growth strategy, albeit on a very strategic basis.
Q. What is pleasantly surprising to you right now about trends related to retail leasing?
Mike: Retailers and restaurants still have their prototype floor plans but with different size floorplates available and virtually no new construction, they are becoming more flexible.
Q. What is your greatest concern going forward about retail leasing, and how will you address that concern?
Mike: The Internet! The Internet needs to be taxed with the same tax rate that retailers and restaurants have to pay in a particular municipality as well as a charge for shipping; that will put bricks and mortar retail on a level playing field.
Hurdles still out there…
Hit hard by the housing slump, retail has nonetheless surprised on the upside. Vacancy has come down slightly from its peak as retailers reposition stores, often moving up to better centers that were too pricey before the recession. Nimble retailers have figured out how to operate in “the new normal.” Biggest risk: consumers are not finished deleveraging, and the housing market is still flat on its back.
…but a positive outlook dominates
Look for retail sales to ramp up gradually in 2011 and 2012 along with the economy in general and the labor market in particular. If the recovery remains sluggish, consumers will remain cautious. Higher inflation, should it materialize, will act as a tailwind for spending if consumers adopt the mindset that purchases will be more expensive next year. Retailers will continue to reposition their stores to take advantage of the favorable rental rates being offered and the ability, in many cases, to move up to better centers that were simply not available to them during the boom years. At the same time, they will be expanding selectively.
Source: Grubb & Ellis 2011 Forecast
Jami Savage
Broker, SRS Real Estate Partners
Years in industry: 3 years
Interests: Playing soccer, reading, golfing, cooking, and riding my beach cruiser.
Years in Arizona: 24 years
Business philosophy: “The true measure of a man is how he treats someone who can do him absolutely no good.” This helps to remind me to treat everyone equally and with respect, which is also how I like to be treated.
Number of retail square feet managed, leased or sold throughout career: Currently managing more than 1.4 million SF.
Biggest deal: Represented a tenant in purchasing a former Wal-Mart.
Q. What has been the biggest change you’ve seen in the retail leasing market in the past six months?
Jami: One of the biggest changes I have found has been the number of brokers who have moved to new brokerage houses (myself included).
Q. What is pleasantly surprising to you right now about trends related to retail leasing?
Jami: I am pleasantly surprised by the increase in tenant and landlord activity that has occurred so far this year. It is great talking with other brokers and realizing how busy we all have been the last couple of months. It is refreshing and I am looking forward to this trend continuing.
Q. What is your greatest concern going forward about retail leasing, and how will you address that concern?
Jami: The capital markets. I think there is a huge concern with how many more shopping center foreclosures will occur and how tenants will be able to finance their buildouts. I think there needs to be continued improvement in the economy with regard to more consumer spending and more job growth.