The Association of Commercial Real Estate Executives, ACRE in industry speak, recently hosted their 2016 Commercial Real Estate Industry Forecast.
Every year, ACRE assembles a panel of Southern California’s top retail leasing and investment sales brokers to offer their prediction and insights for the year ahead.
This year’s panel addressed an issue important to Southern California shopping center landlords: The value of Mom & Pop tenants.
Interestingly enough, however, this vital nugget wasn’t reveal head on. It can to light as the panelist discussed the current state of Southern California’s retail real estate market, touching on both the upside and the challenges.
Here’s how it all played out…
Southern Retail Real Estate Market is Thriving
The panelists were in complete agreement that the Southern California retail real estate market is healthier than ever. There’s no shortage of tenants seeking space, transaction volume is surging, rents have returned to post-Great Recession rates, and current tenants are better funded, not to mention savvier operators than their pre-recession counterparts.
Retail Real Estate’s Biggest Challenge in 2016
Yet despite all the activity, panelist admitted they’re still struggling with a big problem: Dwindling supply. Make no mistake, there’s still plenty of vacancy. A great many spaces abandoned by failing tenants in the depths of the recession remain empty.
The spaces in short supply are those high visibility end-cap units on Main & Main intersections in prime locations. In short, the spaces credit tenants covet.
At this point in the economy’s recovery, however, these spaces have all been snapped up. And the leasing brokers on the panel confirmed that on the rare occasion such a space becomes available, they’re buried in a snow storm of completing LOIs.
So what happens to the other spaces? Inline units in mid-block centers? Elbow spaces in centers in secondary locations?
This is where the true value of Mom & Pop tenants is fully revealed. And the ACRE panelists shared stories that illustrate exactly how Mom & Pop tenants benefit shopping center landlords…
Silver Lake + Highland Park Street Retail
One of CBM’s team members, Valley Division Leasing Director, Dave O’Connell, had the honor of sitting on this year’s panel. And Mr. O’Connell recounted his experiences leasing several spaces to Mom & Pop restaurant operators expanding into emerging markets, specifically Silver Lake and Highland Park, two steadily gentrifying communities in northeast Los Angeles.
These are both areas most credit tenants wouldn’t consider. Historically speaking, the population and average annual household income demographics don’t meet their minimum standards.
But the demographics in these areas are evolving, and successful, non-credit tenants are eager to capitalize on these emerging markets before bigger players move int. As such, Mr. O’Connell was able to negotiate very aggressive lease rates on long term deals with well-capitalized, experienced tenants. Not traditional credit tenants, but seasoned tenants that landlords can reasonably assume – based on track record and ready funds – will succeed in the long-term.
Cerritos Shopping Center
Another Orange County-based leasing broker related his experiences leasing a recently rehabbed shopping center in the city of Cerritos. Despite the opportunity to locate in a newly remodeled property on a high-traffic street, a retinue of credit tenants passed on the opportunity. The declining tenants referenced questionable area demographics as their main point of concern.
Then a reputable regional restaurant owner, already operating three successful restaurants in Orange County, expressed interest in the property. The tenant was willing to pay top dollar for the space and commit to a long term lease. And despite the landlord’s desire for a credit tenant, she was willing to consider the regional operator based on the strength of the offer and the tenant’s successful track record.
Mom & Pop Tenants: More Than a Consolation Prize
In the scenarios above, the landlords weren’t able to secure a coveted credit tenant. But they were able to negotiate long term leases at their desired rental rate. And they were able to fill vacancies that in all likelihood would never be leased by credit tenants.
Absorbing vacancies undesirable to the majority of credit tenants, and filling them with viable businesses likely to thrive for years to come – this is the value mom & pop tenants provide Southern California shopping center landlords.
CBM Knows Mom & Pop Tenants
The bulk of CBM’s leasing transactions are with mom & pop tenants. We negotiated nearly 300 mom & pop leases last year alone, a pace we’ve maintained over the past half-decade. Our seasoned leasing team understands the needs, and eccentricities, of mom & pop tenants. And we help shopping center landlords, just like you, negotiate favorable deals. Crafting leases with mutually agreeable terms that satisfy all parties involved.
Need Help Leasing Your Retail Shopping Center?
Visit CBM’s Services page to find out more about how our expert retail leasing agents can help lease your shopping center.