TUSTIN, CA—Today the focus in retail real estate is on quality, and sometimes that means that less is more, Coreland Cos.’ SVP Matt Hammond tells GlobeSt.com. As the industry continues to evaluate what works and does not work in terms of retail development, it has become evident that smaller parcels of more usable space in “A” and ‘B’ locations will generate higher rents in the long run. We spoke with Hammond in advance of ICSC RECon in Las Vegas about how this model works and the issues and opportunities surrounding smaller retail parcels.
GlobeSt.com: How does the concept of “less is more” work for today’s retail space?
Hammond: We have moved way beyond the time when owners tried to maximize land value by incorporating as much retail gross leasable area as possible into shopping-center developments. Today the focus is on quality, and sometime that means that less is more.
An ideal example is a property in Orange County that was challenged by a 16,000-square-foot vacant building within a fitness-anchored shopping center. We knew that attracting a single-use retail tenant for the as-is space would be difficult. A smaller building that could better-accommodate food uses would generate three times the interest and twice the lease value. Ownership took the risk, demolished the 16,000-square-foot building and will soon be opening an 8,200-square-foot pad to house some of the top QSRs in Southern California.
GlobeSt.com: With so many neighborhood shopping centers competing for tenants, how do you know when to take the risk of redevelopment?
Hammond: We are over-retailed in many areas and, quite frankly, there are a number of older sites that need to be completely re-thought, not just re-tenanted. It’s about taking a hard look at your center and the surrounding competition. Is the area underserved? Is it too saturated in certain categories?
There are always opportunities to create value, but sometimes that means starting over and implementing a different strategy. At the end of the day, you take a risk when you have something lined up, whether it’s tenants that fill a void or a viable multifamily strategy. You do it when you are confident that the interest exists.
GlobeSt.com: How do smaller buildings translate into higher rents for retail space? Do they pose different challenges?
Hammond: Restaurants, for example, generate substantially more sales per square foot than a traditional retailer, so they are able to pay higher rents. A quality quick-service restaurant operating in 2,000 square feet will do double the sales of a traditional retailer. The main challenge is the higher parking requirements to accommodate food, fitness or entertainment uses. A great deal of creativity is required to make this work, but the long-term added benefit in lease value off-sets the costs of initial studies or consultants.
GlobeSt.com: How are landlords dealing with the higher parking demand that these tenants generate?
Hammond: Progressive cities understand that the ultimate goal is to keep local shopping centers healthy and generating tax dollars. Outdated zoning codes need to be re-thought. However, cities that were denying requests for additional food uses 10-plus years ago are now more open to evaluation. An effective parking study taking all options into account―valet, off-site parking, public transportation―is worth the investment.
GlobeSt.com: Does this all mean that we are seeing the permanent demise of large spaces?
Hammond: There is still a place for big-box tenants—just not in every shopping center and certainly not in every market. Food, fitness and entertainment provide today’s greatest value-add as customers no longer drive to specific centers for box tenants. They drive for the latest dessert concept, a trendy QSR or café, great entertainment or even a well-planned community space.
As an example, we are working with a client that is in the midst of rethinking a site in the Inland Empire. Ten years ago, this client had a site plan filled with big boxes. Today we are working on a strategy to eliminate 50% of the retail GLA in the original plan and redesign to incorporate multifamily, a grocer, minimal shops and a number of pads on the street.