“The only thing not for sale right now is my wife and my kids.” That’s one comment that was overheard at the recent New York International Council of Shopping Centers (ICSC) New York, held at the Hilton New York.
With outside temperatures hovering near the 60-degree mark and feeling anything but holiday-like during the ICSC deal-making session, the collective mood and attitude of the more than 6,600 attendees inside matched the “things are heating up” spirit.
The regional session, which provides the opportunity for developers, retail leasing professionals and retail representatives to network together, is annually set against a backdrop of the ongoing holiday shopping season in the retail shopping mecca that is New York City.
If ever you’ve doubted the health of the retail world, simply stroll down a few blocks to Times Square and gaze at the sea of shopping humanity.
Bon Appetit
New York Mayor Michael Bloomberg started the two-day event off with optimistic remarks, especially relating to the New York retail environment.
“The reports I am receiving show a tremendous start to the shopping season, especially among higher-end stores,” Bloomberg said, “and if you really want to see something, visit the Forever 21 store, which draws tens of thousands of customers and is open from 8 a.m. to 2 a.m. each day.”
Restaurants were an oft-mentioned category at ICSC, with that sector of the industry demonstrating extraordinary activity.
“We have closed a flurry of restaurant deals to end the year in the suburban Maryland marketplace,” said Steve Combs of KLNB Retail, “with many concepts bypassing other markets so they can open additional sites in the greater Washington, D.C., region.”
“There is creative energy surrounding the restaurant industry that, in some cases, overrides the prevailing economic sentiment,” said Stu Morden, a leasing broker for Newmark Knight Frank in New York City, agreeing with his locally-based colleague.
Bloomberg weighed in on the subject. “We are seeing a number of restaurants close, only to be replaced by new dining concepts opening. This turnover makes for healthy conditions,” he said.
Net Competition
Keynote luncheon speaker David Henry, president and CEO of Kimco Realty Corp. (which owns Columbia’s Village Centers), prefaced the three significant challenges facing the retail real estate industry with positive remarks.
“Considering the continued weakness of the housing market, slow job growth and high energy prices that negatively affect the national economy, the retail market is showing strong signs of bouncing back,” he said. “Back-to-school sales were extremely strong, Black Friday showed an impressive start [to the holiday shopping season] and we expect more than 72,000 new stores to open within the next 24 months in the United States.”
Henry then proceeded to outline the three challenges facing the domestic retail industry.
“Internet shopping cuts deeper into our market share each year, and the problem is especially acute, given the uneven playing field that brick-and-mortar retailers face with the sales tax issue,” he said.
The problem lies with certain virtual-shopping venues such as Amazon.com that do not have guidelines to charge sales tax to customers. That results in missed opportunities for traditional retailers. The flight to (and use of) these sites are growing daily.
In one dramatic example, Henry explained how a Florida-based shoe store leasing space in a Kimco project blamed its demise on the sales tax issue and popularity of Internet shopping.
“The owners explained how consumers regularly asked salespeople to size their children’s feet and then subsequently picked out appropriate footwear, only to write down the product number of the shoe and promptly leave the store without making a purchase,” he said. “After a prolonged repetition of consumers exhibiting this ritual, the store eventually succumbed. Internet sales are growing four times faster than the rate of traditional retail shopping, on an annual basis,” Henry said.
To combat the growing problem, ICSC has initiated a full court press to attract media coverage and convince legislators to level the playing field with a Sales Tax Fairness initiative. Separate bills currently up for debate in Congress and the House of Representatives were introduced that will “enable states to collect sales tax from remote retailers, such as Internet-only sellers.”
According to Jesse Tron, media relations specialist for ICSC, more than $23 billion is expected to be lost in 2012 due to non-payment of sales tax, based on research conducted by the University of Tennessee.
The continued struggles faced by local retailers, often referred to as “mom ’n pop” stores, is challenge number two, Henry said.
“The more than 7,000 community banks in the United States are not lending to small business in the same fashion as [they] previously [had], and that is hurting their business activities,” he said. “The health of local stores, and the unique choices they offer customers, is important to a vibrant national economy.”
For challenge number three, Henry pointed to the trend of the diminishing prototype size of retailers. “When many retailers retool their store concept, the revamped layout tends to occupy less space for increased efficiency,” he said. “The negative ramification for landlords in this scenario speaks for itself.”
Space Available
Looking back to the positive news, Henry explained that the population in the United States is growing at a clip of more than three million people annually, and in 2011 the amount of major new retail construction was virtually non-existent.
“New uses are also gobbling up existing retail spaces, including vocational, educational and medical. Display space is another new concept that we expect to continue; consumers can examine items, but can’t physically purchase them from the stores,” he said.
“If ’08 and ’09 represented the bottom of the barrel,” said Neil Tucker of Chesapeake Real Estate Group in Glen Burnie, “then I would rate the 2011 market at about here,” positioning his fist at approximately eye level.
“We are especially bullish on Baltimore City and are actively negotiating leases for approximately 250,000 square feet of retail space (of a total of 325,000 square feet) at such sites as Baltimore’s Canton Crossing,” he said. “We have a dozen leasing meetings arranged for the project in New York and believe Baltimore City remains underserved by retail.”
Positive Vibes
Rather than hunting for new leases, Joseph Rode, president of Mullan Contracting Co., in Lutherville, was harvesting retailers and developers interested in initiating new construction projects.
“The players showing activity in the marketplace remain constant from last year,” he said, citing health care and medical concepts, drugstores and automotive retailers such as AutoZone. “Optimism was in the air; everyone at the show was upbeat; and we expect new projects to come to fruition in 2012.”
Other observers feel that traction in the market is increasing.
“People have been sitting on the sideline for nearly three years, resisting the urge to invest in retail real estate properties,” said Gil Neuman, who handles investment sales for KLNB Retail. “How many more years can they earn 1% on their investments before recognizing the tremendous values that await them?
“They are slowly wading back into the market,” said Neuman, “in tune with increased consumer confidence.”
Larry Lichtenauer is president and founder of Lawrence Howard & Associates in Owings Mills. He can be contacted at 410-363-6205 and LarryHow@aol.com.
