Shopping Center Business

MAY 2015

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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MAY 2015 • SHOPPING CENTER BUSINESS • 309 SCB: And Union Square had the highest rent growth? Spiegelman: Union Square led the way globally in rent growth at 30 percent. San Francisco is a gateway city. It is a highly vibrant economy driven by technology. San Francisco down to Silicon Valley is one of the top business locations in the United States. It is way beyond the dot- com boom. There's been a long-time structural change and that market will ultimately prove to be one of the most important business locations in the world. Google, Salesforce, LinkedIn, Facebook, Apple and such companies are so influ- ential to that economy — a major engine. Last year Cushman & Wakefield was in- volved in the largest office lease ever done in San Francisco: the 714,000-square-foot Salesforce headquarters lease right down- town, off Union Square, in a 1.4 million- square-foot building that Boston Proper- ties is developing. SCB: Are you seeing a predominance of retailers from the United States or Eu- rope? Who is looking at the high streets here in the United States? Spiegelman: Specialty retail (apparel, footwear and accessories) and luxury retail, as well as quality food and bever- age are leading the way. We are seeing a healthy mix of both global and U.S. brands. You could look at individual stories, like the launch of Primark in the United States. Primark is landing in Bos- ton, in the former Filene's Department store building — a 100-year-old building in Downtown Crossing. Cushman & Wake- field represented the landlord in the trans- action, and brought Primark to the table. It is going to be one of the most influential rollouts of any brand in the United States. They are going to make a major impact. For their first location, they've committed to 112,000 square feet of space. They are opening this fall in a landmark building at a very historical location. SCB: What effect does the exchange rate have on international expansion? For ex- ample, with the U.S. Dollar becoming stronger compared to the Euro, is it more difficult for European retailers to capital- ize U.S. expansion — or is it potentially more profitable as U.S. consumers may spend more? Spiegelman: With the dollar gaining strength against the Euro, we are con- cerned that European visits to the United States will drop as holiday makers find it too expensive to make the trip. A pro- longed drop in the Euro may have a nega- tive impact on retail sales and hospitality stays in the United States. In markets such as New York City, where we enjoy more than 11 million international visitors, we are closely watching this trend. With re- spect to expansion plans for international retailers, businesses of scale and global scope will look very closely at their [for- eign exchange] management policy and sourcing initiatives to mitigate the effects of currency movements. SCB: In the past, international retailers coming to the U.S. have come immedi- ately to New York. Are you still seeing that being the predominant location or are they looking at locations that may be less costly as an entry point? Spiegelman: They might look at Los Angeles or San Francisco, or maybe Miami if they have a Latin heritage, but New York is still the predominant landing pad for new brands. Primark, in particu- lar, bucked the trend with its decision to launch its expansion to the United States in Boston. One part of their decision was that Primark has a cultural connection [to Boston]. Primark is thought to be from London, but it is actually an Irish com- pany — from Dublin. It has Irish roots and Boston is an Irish town. Notwithstanding the cultural connections, the building they selected is a phenomenal piece of real estate at a location with daily pedestrian traffic counts akin to those at Fifth Av- enue and 53rd Street in Manhattan. It sits on top of all of Boston's transportation, thus possessing the key real estate fun- damentals of location, location, location. But New York is still predominantly the landing spot. SCB: What areas of New York? Are any looking at SoHo or even Brooklyn? Spiegelman: Fifth Avenue, Madison Avenue, Times Square, SoHo, Wil- liamsburg, the Meatpacking District. It is a really spreading opportunity. That is the whole key to our business: cities are growing. Gentrification of cities expands beyond their traditional boundaries, and our market opportunity expands with that. You can look at all cities. In every major market in the U.S. — New York, Boston, Chicago, San Francisco, L.A., Miami, D.C., Philly — cities are spread- ing the boundaries of cultural arts and business. Though we always talk about the top-tier cities, there are a lot of other areas of growth in the U.S. fueled by tech- nology, business and manufacturing. You can look at Denver, which is an energy economy. Look down in Nashville — which is driven by healthcare, education, entertainment and music, and automo- bile manufacturing. Look at Miami — it is growing, south into Brickell or west and north into the Design District. SCB: How do retailers judge a market? Are they looking at sales where their brand may be in a department store and thinking 'we need to open a store there?' Spiegelman: New market entry differs from retailers looking to expand and di- versify their footprint. New market entry will have a specific identity — typically fashion, accessories and footwear. There will be an intuitive understanding of where their customer is. It's not overly compli- cated — as retailers consider where their competition is doing well. At the end of the day, they look for the basic funda- mentals: location, density, high footfalls, good co-tenancy. Then, they try to figure out what type of real estate they want and how they want to make their presentation. If they have wholesale distribution here, they will certainly look at that wholesale distribution to understand customer pro- file and demographic data to understand where that customer is coming from. If they have an online business here, that is very helpful to understand who and where that customer is. But many of them may not have wide enough distribution to make a mark. So they land in what they know best: high-trafficked areas. But where to go with the first store isn't as complicated as the next three, the next 10. Retailers have to ask 'what have we learned about doing business in a foreign market that will give us good intelligence on how we expand?' That is where it gets really complicated. A retailer's priority is to make money — four-wall profitability. They want to make money at a store level and at a market level. However, we also know there is a segment of the global re- tail community that is willing to step up to flagship locations in prominent cities

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