Multi-level Retail – Best Practices

Multi-level retail is experiencing a renaissance of sorts, particularly densely populated cities such as New York. Here are some of the design and planning factors contributing to its revival:

  • Starting interior retail one floor up from street level to prevent the street level from dominating the center;
  • Placing signature draws and anchors on the highest levels;
  • Building internal stairways inside stores to provide additional linkage;
  • Strategically interspersing food courts, restaurants and non-retail destinations such as concert venues, museum spaces and community halls throughout the center and particularly on upper floors to lure shoppers through a typology retail areas;
  • Introducing circulation from unrelated upper floor uses (residences, offices or hotels) to the highest retail floors to compel traffic past shops;
  • Emphasizing street accessibility, clear sight lines and easy links between floors;
  • Emulating exterior spaces;
  • Installing as many escalators as possible, preferably with a terraced or cascading approach;
  • Improving and modernizing aesthetic quality (i.e. replacing bulky handrails and using glass instead of material such as granite and concrete).

Source: CityLab

Oculus New York – Photo: The Port Authority of New York & New Jersey

Airbnb in Canada

According to a new study by McGill University, Airbnb hosts in Canada’s three largest cities earned a total of $430 million in 2016, a 55 percent increase from 2015. The top ten percent of hosts earned a majority of the overall income with the top one percent taking 12 percent of the total revenue. There are a total of 81,000 Airbnb units across Montreal, Toronto and Vancouver and about 14,000 entire homes are rented for 60 days or more per year on Airbnb. In each of the three cities, approximately 60 percent of active Airbnb listings are entire homes, 30 percent are private rooms, and the rest are shared rooms. The entire homes category is growing 25 percent faster than the other categories. The data compiled for the study is not from Airbnb but rather from the consulting firm Airdna which analyzes the Airbnb website and compiles data for market intelligence reports.

Georgetown Property Trades at Record Rate

McLean-based Capital One recently purchase the prime Georgetown property located at 3150 M NW for $50.2 million ($5,720/sf), according to Washington Business Journal. The sale of the 8,769sf retail building breaks the record for a non-redevelopment transaction in DC, according to the report (citing CoStar). Sagamore Development, the development arm of Under Armour founder Kevin Plank was the seller. Sangamore purchased the property in 2014 for $12.2 million and proceeded to renovate the building and create a new basement. The transaction included a ground lease for the adjacent property at 3146 M NW which was not included in the $50.2 million purchase consideration.

3150 M NW – Photo: PoPville

Cyclical Trends in Real Estate

Average U.S. commercial real estate prices fell by 40 percent between the 2007 peak and the trough in 2010, according to Alex Pollock of R Street. Since then, prices have rebounded and are now 22 percent above the 2007 peak in nominal terms (six percent higher than 2007 peak levels in inflation-adjusted terms). By comparison, inflation-adjusted prices in the housing market are at the 2004 level which was about two-thirds of the way to the 2007 peak.

Bank credit to the CRE industry has grown at over 7 percent per year in the last two years and is currently at $1.35 trillion – up $238 billion (21 percent) since the end of 2013.  On the residential side, growth in lending has been slower in part due to increased government regulation aimed at protecting homeowners from foreclosures and reforming capital markets in general. The result has been less liquidity in the housing sector and a lower rate of asset price inflation. Total residential mortgage loans were $2.45 trillion in 2012 and $2.41 trillion in the first quarter of this year with total mortgages outstanding (1-4 family) increasing only from $10.04 trillion to $10.33 trillion in the same period, according to the report.

CRE Prices (Nominal and Real) – Graph: R Street

Cap Rates Rise in the Net Lease Dollar Store Sector

The supply of single-tenant dollar store properties increased by 34 percent in Q2–2017 when compared to Q2–2016 with cap rates rising from 6.65 percent to 6.75 percent during this period, according to Commercial Property Executive. The significant increase in supply is attributed in part to new construction properties (properties up to 12 months old) which comprised more than 57 percent of the supply of net lease dollar stores in the second quarter of this year. Dollar store properties priced at a 52 basis point discount compared to the overall net lease retail market in the second quarter of this year.

Starbucks Shutters Teavana Stores

Starbucks will close all 379 Teavana stores citing underperformance, according to MarketWatch.  The coffee company purchased the primarily mall-based Teavana chain in 2012 for about $620 million. Starbucks will continue to sell Teavana-branded products in its stores and elsewhere, capturing a share of the $1.1 billion premium ready-to-drink bottled tea market. The company’s tea business has grown about 40 percent in the past five years. Starbucks has over 23,000 locations worldwide.

Teavana – Photo: Taubman Centers

L.A. Leads U.S. CRE Market in H1–2017

In the first half of this year, Los Angeles outpaced New York in commercial property sales, according to Dow Jones Newswires (citing data from Real Capital Analytics). Investment into Los Angeles property totaled $12.6 billion compared to $10.6 billion in Manhattan, which is typically the national leader in terms of volume. Nationwide, $209.4 billion in commercial property traded hands during the first half of 2017, a nine percent decline from the same period last year.

Amazon’s Market Dominance

Amazon is growing at 30 percent per year, according to Business Insider (citing analysis from Needham & Company). The online retailer’s market share is expected to grow from its current 34 percent to about 50 percent in 2020. Third-party selling makes up 49 percent of the company’s sales and is growing at a higher rate than first-party sales. Over 100,000 sellers do more than $100,000/year in business on Amazon, according to the report. Amazon also has the most popular e-commerce app with about 76 percent of consumers using the app compared to 33 percent for the Walmart app (the next most popular app).

Whole Foods Market, Amazon’s recent $13.7 billion acquisition reported total sales of $8.7 billion for the 28-week period ending April 9, 2017. Average weekly sales per store were $663,000 ($880/sf) which is one of the highest in the industry and net income was $194 million (2.2 percent of sales).