Retailers Turn to Niche Opportunities

Retailers Turn to Niche Opportunities

Retailers turn to niche to thrive

May 20, 2018

By Lauren Farhat

Niche retailing should be considered risky business, right? Well, think again. According to Dees Stribling in this Bisnow national story, up-and-coming retailers can still look ahead to a bright future, but, “the niche has to be right.” With some retailers across the nation closing up shop, some such as Dutch men’s clothier Suitsupply, Magnolia Bakery and Club Pilates aren’t ready to be put to rest.

Suitsupply initially grew its brand in countries overseas. Unlike many other men’s clothing suppliers, the company now has big plans to expand beyond its 33 already existing stores in the U.S.. In selling, off-the-rack suits that are more expensive than mass-market but not as pricey as custom suits, the company’s niche is a perfect fit for cities like Brooklyn, Manhattan and Boston.

Retailers Focus on Niches

According to the Wall Street Journal, New York City brand Magnolia Bakery is also planning an expansion of franchises over the next few years. Except this time around, the company’s strategy isn’t to leverage from the sole success of its cupcakes, but the other parts of Magnolia that just as equally establish sales.

Other deep-seated commercial real estate retailers are those following the rage in the newly hot and trendy fitness world. Fitness chains such as Club Pilates, have been replenishing unoccupied spaces once filled by their failed retailer counterparts. Next year, Club Pilates foresees 5% to 10% of their locations occupying these types of retail spaces.

Will this niche approach work for retailers? It just might. As the industry transforms, look for more creative approaches that target niche markets. Consider how retailers are using a mix of online and bricks and mortar, for example.

 

Retail Stores Outlook: What’s Ahead After Toys “R” Us Store Closings?

Retail Stores Outlook: What’s Ahead After Toys “R” Us Store Closings?

Retail stores are scrambling to fine tune their approach as Toys “R” Us announces plans to close 800 stores

March 25, 2018

By Lauren Farhat

Toys “R” Us stores close: downfall sends wakeup call to other retail stores

With the recent closure of 800 Toys “R” Us store throughout the U.S., many retailers are reevaluating their own retail presence. Lucky for them, there are various solutions being proposed. Jamie Ward, group head of the retail finance group in the Boston office at Citizens Business Capital, tells Midwest Real Estate News the answer is online marketplaces.

By tying into booming online markets such as Amazon and Walmart, physical retailers can use these platforms for the implementation of their own shops. This provides customers greater convenience, lower prices and expanded product selection. Ward notes that about half the customers who start an online search today start it on Amazon.com. Retailers such as Nike, Land’s End and Lord and Taylor have brought in seemingly more customers through this “omnimethod” approach, as opposed to relying on just bricks and mortar stores and their own websites.

Retail stores and larger malls throughout the Midwest are also experiencing the same types of issues when trying to attract customers. The efficiency, cost savings and wide selection found with online retailers is brutal to compete against. Mall owners and leasing brokers are better off focusing on customer experience with the incorporation of restaurants, bars, and gyms – to name a few. Malls that give customers more reason to traffic their facility rather than browse the web will have the ability to stay afloat.

What’s the outlook for traditional retail?

There is plenty of hope — as long as retailers stay mindful of changing their habits as customers change theirs. Those physical retailers who decided to stay close-minded about an “omnimethod” approach may soon find themselves descending into their own demise, leaving the commercial real estate industry with a surplus of vacancies, and online retailers a heaping of new customers.

Office REIT Movement and Other Commercial Real Estate Updates

Office REIT Movement and Other Commercial Real Estate Updates

January 15, 2018

Here’s a quick look at what’s going on in commercial real estate investment, along with the retail and industrial sectors.

Office REITs Moving Away From Acquisitions

According to National Real Estate Investor, some office REITs are shying away from acquisitions for 2018. Citing rising interest rates as a factor, the story notes that REITs will now be focusing more on development opportunities. Another factor at play is the shortage of high quality commercial real estate assets in some markets — given the strong investment cycle over the past several years and the desire by institutional investors to hold on for a longer term.

New York Investor Likes Chicago’s Uptown

Chicago’s Uptown neighborhood, with its growing transit-oriented-development corridor, has caught the eye of

Image from Great Global Holdings, which acquired the retail holdings in this Uptown development.

a New York investor, reports Bisnow. Great Global Holdings paid $8.9 M of the retail portion of the Wilson Yards mixed-use development. This is the firm’s fifth Chicago retail acquisition. What’s driving this activity?

Click here for more.

Amazon HQs Update: Residents Look Beyond Economic Stats

The race to lure the Amazon HQ2 continues, with more than 200 locations across North America vying for this prize. According to this Business Insider story, some residents are worrying about the problems associated with adding up to 50K employee into one area. Traffic, souring housing prices…you name it. Check out the story for more on who’s in the running and what this all could mean in terms of economic growth.

Grocery Anchored Centers Losing Luster?

Image courtesy of REJournals.com

Once the darling of the commercial real estate investment world, grocery anchored shopping centers are losing some of their luster, reports rejournals.com. Citing research from Morningstar Credit Ratings, the story details how the food buying landscape is changing. While grocery stores that offered a full line of goods and has at least $2 M in annual sales were once considered “e-commerce resistant,” that appears to be changing.

How will this play out for investors in 2018? Stay tuned!

 

Industrial Real Estate Investment Still Strong

Industrial Real Estate Investment Still Strong

RCM Media image1 SOCIAL

A Real Capital Markets and SIOR Report found investors bullish on industrial real estate heading into 2018.

Industrial real estate investment is expected to continue its healthy run into 2018, as strong leasing, construction, and investment sales fuel the market, according to the recent Real Capital Markets (RCM)/SIOR Investment Sentiment Report. What’s driving this record investment? It’s easy to point to e-commerce as a major force, but that is just one part of the story, according to survey respondents.

Here are 5 key findings from the report:

  • Volume for 2018? — 90.3% of investors and brokers across the country say investment levels will at least stay the same going into 2018, with many predicting a slight increase in activity.
  • E-commerce Effect — E-commerce is having the greatest impact on market activity, but is not the only factor driving industrial activity. There is growth in light manufacturing, specialty food manufacturing and general corporate distribution space, for example. Also, many corporations are expanding their distribution space needs, moving to larger or newer facilities. Other companies are using warehouse and distribution space for newer manufacturing needs — such as recycled materials or green energy related uses.
  • Investment sales pricing — is expected to stay the same (92.7% of respondents) or rise by 5% or more going into 2018 (33.8% of respondents).
  • Watch out for overbuilding — 40.6% of investors say that overbuilding is the greatest threat to the industrial market.
  • Mid-size and modern new buildings win out — 35.8% of respondents prefer new, mid-size, modern, multi-tenant building

This current industrial market is unique in its longevity — and the array of market fundaments that are propelling activity. With growth in the supply chain, corporate distribution space realignment, and the continued expansion of e-commerce, it’s difficult to see an end in sight for investment in industrial real estate.

Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Whole Foods, Amazon: What’s Ahead for Grocery Delivery

Sept. 2017

Food Oases: Amazon’s move into grocery delivery and the impact on consumers, industrial real estate

Fresh produce and other high quality items may be available for grocery delivery for many of the 23.5 million Americans living in food desserts—but they’re not necessarily coming as grocery stores.  A recent Bisnow article highlighted how online grocery delivery services are helping bring fresh and healthy foods to those living without access to major supermarkets.

Pexels Food image

Grocery delivery is a hot items for Amazon, given its purchase of Whole Foods. Image courtesy of Pexel.

Barriers to entry

While online food orders only account for about 2-4 percent of grocery shopping, there’s high potential for grocer  growth without building or renting a lot of additional real estate.  But there are also challenges:

  • Cost of renting or owning cooler or freezer space is high- $150-$170/sf
  • Food deserts are often in low-income areas where people don’t spend money on high-quality foods
  • Distribution centers must be within an hour of customers, a potential challenge on the industrial real estate side

New stores and distribution centers offering online ordering

Some companies are skirting these issues by using their existing stores as extensions of cold storage facilities. Amazon’s recent acquisition of Whole Foods, as well as its purchase or rental of several new cold storage facilities in major cities like Chicago, Dallas and New York, have allowed the company to expand its Amazon Fresh network to a greater base.

More choices doesn’t mean people will choose healthily

Because many food deserts are in low-income areas, online grocery retailers may be entitled to funding similar to tax incentives for affordable housing when they educate the public on a healthy diet. That may be an incentive for the retailers, but it won’t necessarily entice customers to make the right choices when they buy foods. In one case in the Bronx, the city of New York paid 40% of the construction costs for a supermarket to be built in a food desert, but customers still chose less expensive processed food options.

Stay tuned for more on how this grocery delivery trend impacts consumers — as well as industrial real estate professionals.

 

Greatest Threat to Retail? E-commerce and Shifting Consumers Habits

Greatest Threat to Retail? E-commerce and Shifting Consumers Habits

June 2017

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While e-commerce is often blamed for struggles in the retail sector, there are several other factors at play, according to Real Capital Markets’ recently released 2017 Retail Sentiment Report, which gauged opinions from investors across the U.S. The study examines changing consumer habits and how some survey respondents are trying to reinvent their approach to retail.

Among the study findings are:

  • Shifting consumer buying habits are the greatest threat to the industry. From e-commerce to in-store pickup and attitudes toward power shopping centers, shifting consumer habits have the eye of retailers as they try to navigate this current retail climate. Disruption has hit the retail industry and investors are aware of its impact and looking for ways to mitigate risks.
  • Most investors feel reinvention is the key to solving the industry’s greatest issues. In light of large tenant shake-ups and e-commerce pressures, investors are looking long-term at where retail is heading and what investments make sense.
  • Anchored shopping centers are the preferred property type for investors by a margin of 3:1. In this category, centers anchored by grocery tenants are preferred, as this sector is considered secure against e-commerce.
  • More than 57 percent of investors surveyed are net buyers of retail properties, an indication investors looking for opportunities and the ability to “balance” portfolios previously buoyed by other asset types.
Commercial Real Estate Trends for 2017

Commercial Real Estate Trends for 2017

The commercial real estate industry has been on a strong cycle for several years. The big question is: How long will it continue? The latest Emerging Trends Report by PWC (PricewaterhouseCoopers) and the Urban Land Institute, has the long view on the market. Here’s the latest.

The Strong Investment Sectors for 2017?

pjp_interior-industrial-center

Supply chain and e-commerce growth continues to drive Industrial real estate leasing and investment.

Industrial — continues to top the charts, due to the growth in e-commerce and the general supply chain.  Well located, institutional quality distribution space has been in short supply for several years across the country. While new construction has been strong, it will take time to lease and sell the buildings and, thus, fill all the demand. Bottom line: investors like the stability and long-term growth of this sector and will continue to seek strong assets in primary, secondary and even outlying markets.

Senior Housing/Retirement Homes — these will continue to be in favor, due to the aging population and need for community residences and related services.

 

oakland-urban-retail-centerUrban Mixed-Use Developments — these vibrant, urban developments that combines residential, retail, offices and more continue to draw Millennials and Baby Boomers alike — and should guide development going into 2017 and beyond.

The Emerging Trends report also predicts:

nyc skyline

Global commercial real estate should be stable in 2017

More stability in market cycles — Look for less volatility, as lessons learned from the global financial meltdown will guide decisions moving forward. While construction still lags during this post-recession era, it should continue at a tempered pace.

Multi-Use– or “Optionality” is in — the trend toward developers and investors seeking flexible, multi-use projects. In this commercial real estate market, buildings that can be adjusted to satisfy multiple tenants and changing neighborhoods are ideal. It lets owners maximize rents and seek the highest and best use.Bisnow multifamily yardi

Construction costs to rise due to labor issues — Workers who left during the recession have been slow to return, slowing production and increasing costs. With vacancy rates at record lows in many markets, construction has been a big factor in filling long-term demand. Without an adequate number of workers, costs will rise.

Cap rates could go lower in 2017 — As investors continue to chase deals and limited supply and tempered construction present continued challenges.

 

 

Millennials, Baby Boomers Still Driving CRE

Millennials, Baby Boomers Still Driving CRE

July 2016

The retail, healthcare, multifamily and hospitality sectors are all seeing gains from America’s two biggest generations — the Baby Boomers and the Millennials, as each reaches a different life stage.  According to research from Marcus & Millichap, these two groups comprise 150 million Americans whose spending makes up 30 percent of the U.S. GDP.  That’s a lot of buying power and a boost for the commercial real estate industry. Here’s a look at some key findings:

Bisnow multifamily yardi

Multifamily Gains — Millennials, the renting generation, have fueled the completion of 215,000 new apartment units over the past 12 months. With the absorption of 237,000 units, vacancy has fallen to 4.2 percent, leaving developers room to build even more.

Restaurants Rules — Because they’re not spending on houses and goods, many millennials are spending more on experiences. The bar and restaurant industry has seen a 6.5 percent gain in sales over the last year.

Hotel occupancy is up — to 60.7 percent in the first quarter of 2016, making it the second highest quarter on record, according to Marcus & Millichap.

Retail is stronger — SoBeverly Hills Marriottme millennial are starting to settle down and buy homes or move out from roommate situations, leading to a large increase in spending in several retail sectors. Both home furnishing and home improvement retail stores have seen a 3.6 percent increase over the past year.

Retail

Image via NREI Online

Don’t forget the Boomers — Medication sales, plus an expanded pool of Boomers with insurance pushed sales at drug stores up 8.3 percent from a year ago.

By 2020, 57 million people — 16 percent of the population — will be over 65. Don’t count this age group out, as the spending is likely to continue to drive these key sectors.

Midwest Update: A Closer Look at Retail (and More)

Midwest Update: A Closer Look at Retail (and More)

March 2016

The retail sector has issues. The health care sector has opportunities. Chicago has a few huge commercial real estate projects that might just get off the ground after years of being dormant. These are just a few of the stories we’re tracking:

Retail

Photo via NREI Online

  • Retail woes: We wrote about retailers struggling to strike a balance between e-commerce and brick-and-mortar stores last week. NREI put together a list of 12 retailers who are in bad shape and have been forced to close physical stores. Radio Shack, Barnes & Noble and J.Crew all make the list. (Via NREI Online)
  • Are physical stores better for the environment? While we’re on the topic of retail, a recent study by Simon Property Group indicates brick-and-mortar shopping might actually be more sustainable than shopping online. Assuming consumers purchased the same goods online and in a physical location, the study found that online shopping had a 7 percent greater environmental impact over brick-and-mortar shopping every year. (Via REIT.com)
  • Fewer banks are lending a hand: As economic growth in the U.S. slows, it appears that lenders are getting more cautious about funding domestic real estate developments. A six-year recovery has meant good times for investors, but Mark Myers, the head of the commercial real estate business at Wells Fargo & Co., predicts that banks are going to change their approach to be more cautious this year. That could force landlords to look elsewhere for funding. (Via Bloomberg)
    The Old Main Post Office in Chicago is currently unused (photo via Wikimedia).

    The Old Main Post Office in Chicago is currently unused (photo via Wikimedia).

  • Playing the odds in Chicago: Crain’s has a fun look at four of Chicago’s biggest (and most controversial) real estate projects. Progress has been made on three of the properties in recent weeks, and all four have massive potential. Personal favorite: imagining what could be done with the Old Main Post Office in the West Loop. (Via Crain’s Chicago)
  • Opportunities in health care: John Wilson, president of Chicago-based HSA PrimeCare, outlined the types of properties and markets his company looks for in an interview with GlobeSt.com. Wilson called the health care sector fruitful and said there are even opportunities in secondary markets, provided those markets had strong hospital systems. Cities with universities or state capitals are also good markers. Wilson’s specific examples included Lincoln, Nebraska; Ann Arbor, Michigan; and Columbus, Ohio. (Via GlobeSt)
Retailers Still Working on Mastering E-Commerce Model

Retailers Still Working on Mastering E-Commerce Model

March 2016E-commerce

Nordstrom is struggling, and e-commerce (and perhaps shipping costs) might be partly to blame. That’s according to a recent Bloomberg.com story by Shelly Banjo.

The luxury retailer has seen the price of its shares plummet over the past year and missed its fourth-quarter earnings estimates last month. CFO Mike Koppel talked about Nordstrom’s rough stretch with Bloomberg.com, giving some insight into some of the issues retailers face as they split their focus between brick-and-mortar stores and selling products online.

E-commerce isn’t going away. Nordstrom expects that 30 percent of its sales will come online by 2020, compared to just 8 percent in 2010. But retailers don’t have as good a handle on the e-commerce model as they would like.

Brick-and-mortar stores might seem increasingly old fashioned, but retailers knew how to plan for that model. You build your store. You train your staff. Once you paid off those initial overhead costs, the profits flow in–ideally!

Selling online brings the benefit of low overhead (less of a need for labor and physical stores). But the more retailers like Nordstrom sell online, the more they have to spend to collect and ship the goods to customers. It all adds up!

Nordstrom is trying to catch up to e-commerce competitors like Amazon. But it’s finding that e-commerce isn’t always as profitable a business as physical stores. Nordstrom – and other retailers – will need to figure out the model soon.