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Home My WebLink About5.a. Presentation by Mark Robinson, MidAmerica EXECUTIVE SUMMARY Port Authority Meeting Date: September 18, 2018 AGENDA ITEM: Mark Robinson Presentation AGENDA SECTION: New Business PREPARED BY: Kim Lindquist, Deputy Director AGENDA NO. 5.a. ATTACHMENTS: PowerPoint APPROVED BY: LJM RECOMMENDED ACTION: Presentation ISSUE Mark Robinson of Mid-America Real Estate is a local real estate professional. He represents several of the properties within the City and is very familiar with Rosemount. At the summer EDAM (Economic Development Association of MN) conference he provided a retail presentation to the group. It was very informative and I requested he provide the information to our Port Authority. He will be in attendance on Tuesday night to give a shortened presentation and will also be able to discuss what he sees in the Rosemount retail market. The presentation is attached for the Commissioner’s information. RECOMMENDATION Presentation only. Retail Market Trends Mark Robinson, CCIM –Mid-America Real Estate – Minnesota, LLC 9/14/201 8 1 Presenter Profile Mark Robinson, CCIM Principal | Investment Sales Mid-America Real Estate –MN, LLC Full service 3rd party management, accounting, leasing, investment sales, tenant representation firm Shopping center, single tenant, & retail building investment sales Underwrite investments Analyze trade area, market rents Perform property due diligence Example assignments: 2 Presentation Outline I.Minnesota Market Stats II.Store Closures & Openings III.Retailer Expansion Plans IV.Challenges with Retailers Today V.Amazon VI.Grocery Wars VII.Growth Markets VIII.How Properties Adapt IX.Capital Market Update X.How to Survive in Retail XI.Future: 2018 & Beyond XII.Development Challenges 3 Minnesota Market 67,000,000 sq ft of retail in MSP Metro According to CBRE Q4 2017: Retail vacancy at 8.0%, down from 8.3% in Q3 Availability rose to 10.5%, attributable to growing big box vacancies 4 Minnesota Market Total size Vacancy rate Submarket map Historical occupancy rates 5 Retailer Closures Nationwide 2016 –4,000 stores 2017 –6,000 stores Why? Over retailed marketplace US has 23.5 sq ft of retail space per person vs 16.4 sq ft in Canada and 11.1 sq ft in Australia, the next two highest countries Acceleration of eCommerce Race to the bottom (discounters) Shifting consumer spending patterns 6 Purchasing Trends by Generation 7 Purchasing Trough vs Retail Supply 8 Recent Store Closures & Bankruptcies 9 Who’s Next? Sears Ascena Retail Group PetSmart See a theme? Soft goods Junior/Big Boxes 10 The Good News? More retail stores OPENED than CLOSED in 2017 10,168 stores closed 14,248 stores opened Net 4,080+ new brick & mortar stores Consumer spending up 11 Retailer Expansion Plans Retailer demand still strong, but changing No more department stores Restaurants Fitness Entertainment/Experience Value Medical Smart growth, highly analytical 12 Expanding Restaurants 13 Expanding Fitness Concepts 14 Expanding Entertainment 15 Expanding Value Retailers 16 Medical in Main Stream Retail 17 Challenges with Retailers Today Co-tenancy clauses Sales kick-outs End Caps Drive Thru’s Signage Restricted uses “Any lawful use” clause Developers/Owners can’t finance or sell with these risks Makes many deals nearly impossible Similar issues caused trouble in 2008/2009 18 Amazon (and others!) Online sales continue to increase 2016 –8% of total retail sales nationally 2017 –8.9% of total retail sales nationally Projected continued growth thanks to eGrocery TOTAL ONLINE BRICK & MORTAR 2016 $4.9 trillion $400 billion $4.5 trillion 2017 $5.1 trillion $460 billion $4.64 trillion 2025 $6.54 trillion $1.3 trillion $5.2 trillion 19 Online as % of Retail Sales 20 Amazon’s Fulfillment Capacity vs Retail Store Footprints 21 Amazon Not done yet! Whole Foods (mixed reviews) Continue to push grocery Amazon Go Amazon Books Rumors of additional acquisitions 22 Grocery Wars Grocery is still primary traffic driver for neighborhood retail eCommerce is still having trouble competing against grocery This is changing! Drives daily traffic Higher sales per sq ft than normal retail $520 per sq ft vs $300 per sq ft Strong grocery store is vital to a shopping area 23 Grocery Wars 24 Grocery Wars Unique models for each grocer Price Aldi, Wal-Mart, Target Service Hy-Vee, Lunds & Byerly’s, Kowalski’s Quality Whole Foods, Fresh Thyme Convenience Cub Foods ….nearly impossible to compete in more than 2 models 25 Growth Markets First/second tier development Repurposing/redevelopment in first & second tier trade areas Residential density, daytime population, disposable incomes, etc. 3rd tier, low density markets still struggle Outstate markets attracting national retail interest* No cannibalization Limited competition Less online impact Red carpet reception *A handful of concepts are seeking outstate markets, most requiring high risk landlord deals 26 How Properties Adapt New uses (so long as not restricted?) Create an experience for shoppers Mix of entertainment, restaurant, retail, service, medical Add density –apartments, hotel, office Some spaces more valuable as retailer distribution hubs 27 Regional Malls Adapting Southdale Center Lost JCPenney & Gordmans in 2017 Replacing JCP with 120,000 Sq Ft Life Time Fitness Restoration Hardware opening 4 story 58,000 Sq Ft store on out lot 146 room Hilton Hotel under construction on out lot 28 Regional Malls Adapting Ridgedale Center New Nordstrom in 2015 Cheesecake Factory now open 4 new retail/restaurant pad sites on out lot Apartments proposed near JCPenney New 6,000 sq ft entertainment space “Ridgedale Play” 29 Capital Markets Respond S&P 500 up 24% year over year REIT stocks down 5% Rising interest rates Soft goods risks Not over yet Transaction volume peaked in 2015/2016 30 Capital Markets Respond 2017 Transaction volume down about 20%, 2018 similar REITS & institutions continue to liquidate retail portfolios Mostly grocery and junior box anchored Cap rates for junior box retail up 150 to 200 bps (big decrease in pricing from 2016!) Multi-tenant/neighborhood retail remains steady on pricing Why? Convenience/service driven 31 How to Survive in Retail Today “Omni-channel” –blend online with bricks & mortar Provide an experience Don’t compete on price unless you’re Wal-Mart, TJ Maxx, Aldi, Total Wine Provide a service Provide convenience Can it be done better/easier online? Don’t do it! 32 Future: 2019 & Beyond Increased consumer spending, but mostly helps online More store closures & bankruptcies More malls will fail Experiential/entertainment retail thrives Regional malls continue to transform/adapt 33 Development Challenges More complicated today than ever before Battle for prime real estate Longer & riskier entitlements Equity partners want higher returns Less leverage due to great recession Steep construction costs & tenant improvements Parking & circulation requirements Self development by tenants Rising interest rates 34 Development Challenges Courtesy of Colliers / Welsh 35 Development Challenges Courtesy of Colliers / Welsh 36 Questions & Answers (maybe) 37 38 952-563-6664 Mrobinson@Midamericagrp.com Mark Robinson, CCIM Principal | Investment Sales