Shopping Center Business

MAY 2016

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

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Page 266 of 358

HIGH STREETS 262 • SHOPPING CENTER BUSINESS • May 2016 W hile X Team International partners Kirsten Ear- ly of SRSA Real Estate and Nathan Shor of S.L. Nusbaum Realty Co. operate in two very different markets — New Orleans and Richmond, respectively — both have noticed similar urban leasing and development trends. Richmond and New Orleans are experiencing land availabil- ity challenges downtown, with profound implications for re- tailers and consumers alike. Shor and Early recently discussed this trend, its causes and consequences and some of the creative ways developers are working to overcome these challenges: Shor: The Richmond market doesn't have to deal with physical borders the way some waterfront markets do, for example, but we are still seeing a great many more infill re- development opportunities. You simply can't go too far out into the suburbs before it doesn't make sense any longer. While retailers pre-recession didn't mind being pioneers, the attitude now is that nothing is "real" until the rooftops are there. Developers are looking for opportunities in more densely populated areas, focusing on the demographic sure thing rather than future potential. We're still seeing (by neces- sity) some of the largest projects looking into the suburbs, but predominantly, for developments in the three- to seven-acre range, developers are focused on trying to make things hap- pen in Richmond proper. Early: New Orleans is obviously a very different market than Richmond. A big part of that is simply geography — we are extremely limited when it comes to expansion potential. Our barrier is the water: between Lake Pontchartrain and the Mississippi River, New Orleans development is positioned along an east-west corridor. Availability is a real challenge for retailers at the moment. Land prices are soaring, and parking lots — especially those located next to Class A of- fice buildings, for example — are a hot ticket item. Whether through a joint venture with the landowner or an outright sale, developers are going vertical with multi-use projects — typically with residential or hospitality above ground floor retail. Tight availability and high demand has driven up rental rates. For example, along Magazine Street — a six-mile retail and residential corridor consisting of antique shops, clothing boutiques, restaurants and bars — we are seeing rates in the high 30s to low 40s with some landlords pushing for 50. Local businesses can rarely afford those rates and are having to make some difficult decisions. Shor: Here in Richmond, we have built some downtown office towers recently. That sector has been active, too, with three high-rise transactions that closed at the end of last year alone. We are seeing some residential momentum in the city. Most new residential apartment properties in Richmond are the result of tax-credit-driven rehabilitation of warehouses and other former industrial spaces. The residential boost is helping the dining scene here, too, with restaurants and brew- eries really taking off. Retailers have been backfilling as well. All of this is in the context of two decades of gentrification and a trend that has more families with young children mov- ing back to the city. Just to give you an idea of Richmond's momentum, Travel & Leisure ranked Richmond Number 3 on its "Places To Visit in 2016!" Early: That's exciting. I know you agree with me, however, that these downtown development trends and competitive market forces have an impact on many local and regional retailers. Here in New Orleans, we are one of the leaders in redevelopment of historic structures and we are seeing a handful of mom-and-pop retailers and local institutions get pushed out when their leases come up because they typ- ically can't afford the new price point. An equally pressing issue for us is that national retailers who come looking for 30,000, 40,000 or 50,000 square feet are simply out of luck. We cannot accommodate them right now. There's just not a lot of product out there — especially new product. New product can be achieved; it will just require some creativity and thinking outside the box. Shor: There are definitely some similar dynamics going on in Richmond, but the lack of new product isn't a problem for us at the moment. We have nearly 1 million square feet of retail under construction already or slated to begin soon. Two new Wegmans alone are adding close to 300,000 square feet; German grocer Lidl has five different 30,000-square- foot sites under development; and Aldi has a number of new locations under construction. The concern is that it is tough- er for smaller retailers to get a seat at the table. Developers are getting choosier, and financial backers are often push- ing for big names while disregarding history and co-tenancy considerations. Here, mom-and-pops aren't getting pushed out so much as choosing to get out because they are in a changing industry or a business that is no longer viable. The good news is that there are a number of backfill users for these properties, and smaller players choosing to get out are typically selling for great prices. SCB — Randall Shearin Land Availability Declines In Secondary Market Downtowns X Team partners Kirsten Early and Nathan Shor weigh in on land availability challenges in downtown environments.

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