Retail Real Estate Trends
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
- 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.