NAI Globlal Retail Newsletter

Retail Real Estate Trends

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Trends and Insights on Retail Real Estate by Experts in Multiple Markets

October 6, 2022

Each month a group of NAI Global’s top retail real estate experts participate in a conference call. The group discusses trends in their respective markets, activity, rental rates and investment capitalization rates and related factors impacting the retail industry in the U.S.

Here are some highlights from the October call.

  • Bed, Bath & Beyond
  • Rent-A-Center
  • TIs Impacting Retail Lease Deals
  • Pickleball & Cocktails, Coming to a Place Near You Soon (most likely)
  • This and That

In late August Bed Bath & Beyond said it would close about 150 stores and lay off workers. That announcement came days after company leaders were sued, accused of artificially inflating the stock in a ‘pump and dump scheme.’

The home softs good retailer is suffering from a merchandise problem, among other things (such as a mountain of debt) after it shifted to off-brand products a few years ago, when the company tried to grow nine exclusive brands – and shoppers didn’t respond favorably. Bed Bath & Beyond is scaling back on some of those private label products and trying to bring back major brand names. Its next test will be whether they can do so by the holiday shopping season.

Meanwhile, the NAI Global Retail Council participants on the call said that several Bed Bath & Beyond stores in the Northeast are coming to the market. Additionally, there were some in Dallas, one in Arizona and five or six in the Mid-Atlantic, which to Dimitri Georgelakos, a Principal with NAI KLNB in Tysons, VA, said “is a good thing for the market, because there is so little inventory for small-and-mid-sized box stores.” Bed, Bath & Beyond typically occupies retail space from about 25,000 square feet to as much as 40,000 square feet.

CVS is also closing some stores in the Northeast as it modifies its retail concept to include more in-store health care services, said Michael Jacobs, a Principal with NAI Glickman Kovago & Jacobs, based in Worcester, MA. Walgreens is also adjusting its locations map, as word has it that the retailer was very selective in buying Rite Aid stores—1,932 according to media reports. Walgreens bought the stores and a few distribution centers after trying but not succeeding in buying the entire chain. There is an expectation that some of the stores Walgreens did acquire will go dark if they have not already.

Rent-A-Center, a company valued at $4.6 billion at the end of 2021 and with 2,435 stores at the end of last year, recently completed a new lease and opened a store in Walla Walla, WA. The company has a rent-to-own platform selling furniture, appliances, computer equipment and more to largely middle-class Americans. On average Rent-A-Center opens 10 new locations a year and does about 10 relocations. Robert Render, a Vice President in the Dallas Retail Division of NAI Robert Lynn that represents Rent-A-Center nationally said he is working on multiple transactions for the company but could not disclose the locations at this time.

TIs Impacting Retail Lease Deals

We’ve heard how rapidly rising interest rates is pausing CRE investment sales. Now construction costs, with 30% to 35% increases over a year ago, is negatively impacting retail lease deals as the build-out costs are making deals untenable. Deals are preliminarily getting through committee-level decision-making then killed at transactional (lease) execution. Tenants want rental rate reductions in order to make leases with high TIs pencil, and so far landlords aren’t budging.

Pickleball & Cocktails, Coming to a Place Near You Soon (most likely)

The popularity of pickleball is soaring as a maturing population looks for active and social gatherings that aren’t as demanding as, say, tennis or racquetball – and they are much more social than they are competitive. Hence a new retail/recreational/entertainment business is rolling out – Pickle and Social – that is the third concept developed under the Competitive Social Ventures (CSV) Holding Company. These are the guys that introduced Top Golf. To be clear about its priorities, the company put it on its Pickle and Social website: “(We are) Embracing our Mission to bring people together for FUN and authentic shared experiences by creating an unbeatable atmosphere, innovative play, amazing food and drink, and top-notch service.”

Shelby Tworek, a retail specialist with NAI Horizon in Phoenix, said the company is at work developing a 2-3 acre site in Scottsdale and is also planning similar locations in Gilbert and Glendale, both of which are also in the Phoenix Metro Market.

Related, Jacobs is working with a national sports group seeking locations in select areas along the East Coast and Midwest for entertainment development.

This and That

Home goods stores have been impacted by the slowing housing market. Year-over-Year (YoY) sales of furniture and home-furnishing stores declined in August by 1.6% on a seasonally adjusted basis, while electronics and appliance store sales declined 5.7%, according to the Commerce Department. However, declining sales at retailers such as RH, Wayfair Inc., Williams-Sonoma Inc. and others have been attributed to the shift in consumer spending habits; during the pandemic, consumers stocked up on goods. Since late last year when the health crisis began to fade, consumers switched to services – traveling and dining out, mostly, with their discretionary spending.

Gyms and in-person fitness stores are back and once again boosting occupancy at grocery anchored shopping centers and strip malls. Hammered by the pandemic, the better quality brands fared better than discounters like 24-hour Fitness. In the Mid-Atlantic region, Georgelakos reported that One Life Fitness is opening 50,000-square-foot locations in multiple locations to add to its existing footprint in the region. The company also operates fitness centers in Virginia, West Virginia, Maryland and DC.

Ralph Lauren is Opening 250 New North American Stores

Shifting from department stores to its own branded outlets, Ralph Lauren told investors in late September it has exited two-thirds of department stores where it sold apparel and would instead open direct-to-consumer locations, beginning with 14 new stores in prime markets, such as San Francisco, Denver and Seattle. Already 63% of the company’s revenue comes from consumerdirect sales, with 26% attributed to e-commerce.

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Developer of Moxy Hotel in Chicago’s River North Buys Former Midas Shop Next Door

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By Ryan Ori
CoStar News

October 6, 2022

After building Chicago’s first Moxy hotel next door, well-known River North developer Friedman Properties has bought the site of a former Midas auto shop, which could become the latest low-rise in the city to give way to construction cranes.

Friedman Properties late last month paid just over $4 million for the 8,638-square-foot site at 158 W. Grand Ave., according to NAI Miami brokers who represented the seller, Midas parent TBC Corp.

It’s unclear what the Chicago developer plans to do with the site, or the 4,318-square-foot former Midas building on it. The site’s zoning would allow for an approximately 60,500-square-foot development, NAI Miami broker Jeremy Larkin told CoStar News.

Friedman Properties’ chairman and CEO, Al Friedman, did not respond to a request for comment from CoStar News.

His firm previously built the eight-story, 156-room Moxy Chicago Downtown hotel on a similarly sized site next door at 530 N. LaSalle St. That hotel, developed with Indiana-based White Lodging Services, opened in 2018.

Friedman has decades of experience buying and developing offices, hotels, retail and other properties in the area just north of Chicago’s Loop business district, which led to him being nicknamed “mayor of River North.” It’s possible he bought the development site without a specific plan in hand.

“We marketed it across the country and the guy next door buys it,” Larkin said. “It happens more often than you’d think.

“When I first got into the industry, a mentor told me you always follow the rule of fives. He said you start with the property you’re selling and go five properties in either direction, and you have a 50 to 75% chance you’ll find a buyer.”

Friedman’s other River North properties include the landmark Medinah Temple at 600 N. Wabash Ave., where Chicago plans to have a temporary casino while the city’s permanent facility is built north of there along the Chicago River. In another recent deal, New York-based The Group plans to bring French concept La Grande Boucherie and a smaller Japanese restaurant to a Friedman-owned building previously rented to Ruth’s Chris Steak House at 431 N. Dearborn St.

If Friedman knocks down the Midas building and builds on the site, it would continue a trend of gas stations, auto repair stations, parking garages, surface lots and other low-slung properties that have been replaced by taller structures during a construction boom in and around the Loop since the end the Great Recession.

In fact, Friedman’s Moxy project next door was on a lot where a service station once stood.

About a half-mile east of there, Mavrek Development, GW Properties and Luxury Living Chicago have begun demolishing a parking garage at 535 N. St. Clair St., where they will then construct a 21-story, 248-unit apartment building.

About a half-mile to the west, the Habitat Company and Diversified Real Estate Capital this week broke ground on a 33-story, 343-unit apartment tower. They recently demolished the 120-year-old Cassidy Tire building, which for decades had been a tire retail and auto service facility on the site near the river.

Farther north of the Loop, developer Fern Hill wants to demolish two gas stations it has acquired alongside The Moody Church as part of a multitower North Side development that would be designed by globetrotting architect David Adjaye.

Midas decided to sell the River North site after its lease for the building to a franchisee expired, said Jonelle Compiani, a spokeswoman for Palm Beach Gardens, Florida-based TBC. The Midas shop closed at the end of January, she said in an email.

TBC previously has cashed in on similar properties where property values have risen and developers are seeking land, including in Miami and Seattle, Larkin said.

Brokers were hired to sell the Chicago parcel in the spring, before rising interest rates, inflation and worries of a recession began to push down sale prices throughout the country, he said. Because of high demand in River North and a well-established buyer, the price stayed within the previously expected price range, Larkin said.

“In the right submarket at the right time with the right people, deals will continue to happen, but I think the cycle’s kind of over,” Larkin said. “You’re seeing economic activity start to slow, you’re seeing layoffs and the economy is a bit more dormant.

“In Miami, we’ve seen explosive growth slow to what we’d consider normal growth. The buyer frenzy has stopped but there are still a ton of deals moving along. There’s just not that insanity out there.”

For the Record

The seller was represented by NAI Miami brokers Larkin and Joseph Gallagher, and Chicago-based ARC Real Estate Group brokers Elan Rasansky and Al Rodenbostel.