As I sit down to write the first post on the new blog with any real substance to it, it is important for us to asses the current situation of the market with which we are working in.
Now there is no shortage of data that points one way or the other about the health and stability of the market. All I can offer is what I am seeing on the ground. Activity is up from a year ago but no where close to where it was in 2007. The fly by night buyers are no longer around having been wiped out by the economic downturn. Now, the buyers tend to be more sophisticated and specific. Grocery anchored centers have typically been the goal for small to mid sized corporate investors but I am also seeing some transaction volume with well tenanted shadow centers.
Sellers are starting to come around. The hardest part of being a broker in 2009 was convincing sellers that the market had changed and therefore the value of their property had changed. Now sellers have realized that if they are going to sell their shopping center it has to be priced correctly. Since transactions are down there are a limited amount of comparable sales that will help with pricing. But a good way to ensure accurate pricing is by looking at the current competition. By analyzing comparable properties that are currently on the market you can better evaluate where the property needs to be priced.
The national retailers are out there looking for space. It is a good sign that the national retailers are signing leases. That is the good news. The bad news is that the price per square foot is down and the tenant improvements are up. Shopping Center owners are paying a lot more this year to get those vacancies filled. Short term sacrifice for long term gain is the prevailing thought for shopping center owners. Bringing in a national tenant with a good term will dramatically enhance the marketability of a shopping center and also bring value when it comes to price. A buyer will pay more for a center that has national tenants with corporate leases than a center mom and pop tenants with just one location.
What the current market boils down to is risk. Buyers are looking to reduce the amount of risk in an investment. The more you can reduce the risk in your shopping center the more valuable it will be in the current market. If you have tenants whose term is expiring this year or next try getting them to excercise their option early. I have even seen some owners offer a discount for tenants renewing early. What it does is provide stability for the center as well as help out the tenant.
What I have presented are some extremely general opinions on the current condition of the market. These opinions are based on what I am seeing and hearing from owners and retailers in the East Tennessee market. Each property is different and each situation is different.
I would really like to hear your feedback. What are you seeing in your market?
Good day Mr Moffett
ReplyDeleteThank you very much for your blog, I really enjoyed it.
In your blog above, you speak of the fact that by reducing risk factors in a centre, the value of a centre obviously increases, and the example you have given is by giving a discount to tenants who renew early. This is a fantastic solution to reducing risks and stabalising a centre. My questions to you are:
- What are all the other ways to reduce risk in shopping centres?
- What are ways to attract strong national tenants?
- What can be done to add value to a shopping centre in terms of optimising rentals and minimising expenses?
- Are there any books or documents that I can purchase anywhere to further my knowledge and understanding of the above?
I will also email you and you can email me back at scott@picprop.co.za
I look forward to your response.
Many thanks and all the best..
Scottie