News
ICSC Shopping Centers Today Weekly Report
July 09, 2010
Big loans, low prices in 1Q for retail properties
Retail property sellers accepted lower offers, and bankers loaned out more money to buy, develop and refinance retail properties in the first quarter of 2010 than in the same quarter in 2009, according to the Mortgage Bankers Association. Some $3 billion worth of retail properties priced at $5 million or more were sold in the U.S. during the quarter, up 40 percent from $2.2 billion a year ago. But this is far below the first quarter of 2007, when some $19 billion was traded.
The average price per square foot for the quarter was $147, down 3 percent from the first quarter of 2009. In first-quarter 2007 the average was $181 per square foot. First-quarter 2010 cap rates rose considerably, to 8.3 percent, versus 7.4 percent a year ago and 6.6 percent for first-quarter 2007.
But the availability of loans has eased. The average loan was $14.5 million in the quarter, compared with $11 million a year ago.
South African chains expand to U.S.
Thanks to the World Cup, which climaxes Sunday with the final game, South Africa has boosted its profile on the world stage significantly. And some of that country's retailers are doing likewise. One of them is Rain, a seller of bath and home products made with oils from plants indigenous to South Africa. The chain, which operates eight stores in South Africa and one in Amsterdam, announced this week that it has leased a 1,247-square-foot, ground-floor space at 30 Rockefeller Plaza, home to NBC Studios, in New York City.
"New York and Rockefeller Center draw tourists from around the world 365 days a year and will offer Rain the brand visibility that will be essential as it continues to expand," said Michael Stone, the Cushman & Wakefield broker who advised Rain on site selection.
Another South African chain expanding into the U.S. is Nando's, specializing in chicken made with a spicy sauce called peri-peri. Nando's, which operates about 800 units in total in some 30 countries, says it plans to open its fourth Washington-area restaurant this year, in Silver Spring, Md.
June, year-to-date sales rise in all categories
Same-store sales rose 3 percent year on year in June, according to ICSC's index. This was at the low end of the anticipated 3-to-4 percent range for the month, but sales have grown by 3.8 percent year to date, the highest since 2006.
"The June performance was relatively uneven, as lower prices and discounting held back the reported pace of spending," said Michael P. Niemira, ICSC's chief economist and director of research.
On a positive note, no categories slipped from last June. Luxury chains performed best, with an increase of 8.8 percent, followed by department stores, up 5.9 percent. Drugstore sales were essentially flat, rising by just 0.8 percent.
For July, ICSC again anticipates an increase of 3 to 4 percent.
Vacancies essentially flat in malls, open-air centers
Vacancies at large malls in the top 80 U.S. markets rose to 9 percent in the second quarter, from 8.9 percent in the first quarter, according to real estate data firm Reis. Second-quarter lease rates slipped 0.2 percent from the first quarter, to $38.72 per square foot. Vacancies at U.S. open-air centers, meanwhile, grew to 10.9 percent from 10.8 percent in the first quarter, and lease rates slipped 0.5 percent to $16.58 per square foot.
Brick-and-mortar booksellers begin new chapter
Despite the rising popularity of e-books, brick-and-mortar bookstores are far from writing their final chapter. If anything, some say, they could in fact be penning a dynamic new sequel — provided they can manage to meet an array of operational and real estate challenges. "We see a lot of similarities in what's happening to big-box bookstores with the e-reader and what happened to the video-store industry with Netflix and on-demand," said Joe Brady, a former Hollywood Video executive and now managing director of corporate retail solutions at Jones Lang LaSalle. "If you are a landlord and have Barnes & Noble or a Borders, you are going to see an adaptive reuse of these spaces at some point."
Amazon's Kindle, Apple's iPad and the Sony E-Reader have made no little dent in the physical book chains' sales. "E-readers are now mainstream," Brady said. "They haven't gone into commodity mode yet, but their pricing, quality, connectivity and services will only improve." Book chains are battling hard to lure e-book readers into stores, with offers of free downloads for customers who bring in their e-readers or who buy them on-site.
Certainly, not all the decrease in physical-book sales is attributable to e-readers. The personal computer is still the preferred e-book-reading device, according to media/publishing analysis firm Simba Information. And bookstore chains still account for 27 percent of the book market, versus online purchases, with 20 percent, according to PubTrack, Bowker’s bibliographic information service.
Brady argues that time may be running out for many of the bookstores measuring 20,000 to 40,000 square feet. And if these stores do shrink in size — or worse, if they move out of their current locations entirely — landlords may have quite a time finding any single tenant to replace them; the spaces would probably be broken up and given to 5,000-to-10,000-square-foot substitutes, he says. Others deny this, countering that it is far too early to sound the death knell for physical bookstores.
The problem is operational rather than being attributable to e-readers or the like, says Ivan Friedman, president and CEO of New York City–based RCS Real Estate Advisors. "They (the book chains) have some challenges, but nothing major is going to happen in the next 24 to 36 months," Friedman said. Barnes & Noble, in particular, is quick on its feet, he says. "They have to reinvent themselves to some degree, and they have the capital to do that, as they have done many times before," he said. "I don’t see any wholesale closures there."
Indeed, Barnes & Noble's new CEO, William Lynch, may be just the man to pilot the chain through these waters: He was president of Barnes & Noble’s Web site division and also has an extensive background at HSN.com, Gifts.com and other online sales channels.
Borders got a $25 million cash infusion from investors, a sure sign of market confidence with regard to its future. In any case, the social element of bookstore coffee shops and reading areas is likely to endure, Brady says, as are airport bookstore outlets, college bookstores, half-price bookstores and other niche sellers. The future of the superstores is dependent, however, on the way chains decide to evolve, he says, based on "logical and meaningful connections with the consumer, and especially the millennials."
RETAILING TODAY
American Eagle Outfitters says it will open an unspecified number of stores in Israel, starting in 2012, in partnership with Fox Stores operator Fox-Wizel. This follows the chain's expansion into Dubai and Kuwait.
Women's apparel retailer Bebe Stores announced the closures or conversions of all 48 of its PH8 stores, less than a year after the concept replaced Bebe Sport stores. The converted stores are to reopen as 2b bebe units.
Linens & More for Less, a Brookfield, Ohio–based home-goods startup headed by former Elder-Beerman chief Fred Mershad, says it will open six stores by year-end and five more next year.
Jubilant Foodworks, which operates the Domino's Pizza chain in India, says it plans to open 70 stores across that country in fiscal 2011, as well as the first Domino's in Bangladesh.
THE COMMON AREA
The U.S. shopping center industry shed 2,000 jobs in June, the second consecutive monthly decline, says the Labor Department.
In May U.S. shopping center construction spending fell 2.2 percent from April and 41.5 percent from a year ago, says the Commerce Department.
Movie theaters are an increasingly popular component of malls in China, and there is plenty of room for further expansion. That country's 4,000 movie screens — one per every 75,000 moviegoers — is one-tenth the number in the U.S. Retail developers see multiplexes as a key to drawing China's growing middle class, observers say.
A $400 million mall designed by British architect Norman Foster opened in the Kazakhstan capital of Astana on Tuesday. The structure, whose name can be translated as Khan's Tent, pays homage to the region's traditional tent and uses a central tripod and 400 ropes to support an outer skin. In addition to a range of international retailers, the mall contains an indoor heated beach with sand imported from the Maldives.
U.K. retail real estate investment volume grew by 15 percent year-over-year to Ł3.7 billion ($5.6 billion) in the first six months of 2010, according to CB Richard Ellis. The first half saw stronger activity from non-U.K. capital sources, such as sovereign wealth funds and overseas investors. "We are currently witnessing growing interest from international investors who are actively looking to invest in quality retail property investments in the U.K.," said Bruce Nutman, executive director at CBRE for U.K. retail capital markets.
Russian queues, with 27-minute wait times on average, are the longest and slowest in Europe, according to a study by Mystery Shopping Providers Association. Sweden had the fastest lines, according to the report, which sent mystery shoppers to grocery stores, banks, post offices and drugstores in 18 European countries.
Reproduced with permission.
SCTWeek is a free weekly publication of Shopping Centers Today (c), International Council of Shopping Centers, 1221 Avenue of the Americas, New York, NY, 10020; Edmund Mander, Editor-in-chief. Phone: +1 646 728 3487. Fax: +1 732 694 1730. E-mail: news@icsc.org
