What You Missed at Two Recent CRE Industry Events

I recently attended two events:
The video above is a summary of the TRENDS and CHALLENGES that I heard from tenants, developers, and brokers who are actively transacting business today.
Now, first – if you don’t like watching videos, here is a handy infographic summarizing everything I say in the video!
cool infographic
If you like to read, then please continue:

First, let’s talk about TRENDS.

  • Landlords and developers are seeing the highest demand for food and fitness.  particularly fitness.  There are now more boutique gyms than ever that are popping up and taking space.
  • There were several developers on the panels that talked about building their centers with a sense of place, which seems to be the new buzzword for what we used to call “experiential shopping.”  Whatever term you use, the key is for shopping centers to give you a reason to leave your home – whether it’s an open courtyard, lots of green space, and they even admitted to “overdeveloping,” meaning adding many extra amenities such as outdoor patios, artwork, fountains, and play areas, that are now just an assumed line item in the construction pro forma, where just a decade ago would have been considered extraneous and not necessary.
  • Technology. There was quite a bit of discussion on how retailers are using technology today – and it’s not just in developing a web site for online ordering.  For example, Northgate Market, which recently opened a new store in Riverside, is focusing its digital efforts not on online grocery delivery, but rather on gaining a social media following – because that’s what its target customer responds to.  Ulta Beauty is leveraging its use of customer data.  95% of its customers are part of its loyalty program, and Ulta knows where they live – so as their old leases roll over and they consider moving locations, they can make decisions on potential relocations based on actual customer data.
  • Repurposing and reconfiguring shopping centers.  The old grocery anchored neighborhood center is evolving, and we should expect to see many more mixed use projects, where a big box will be repurposed as apartments, or creative offices.  And hotels could be added onto the land as well.  These types of developments will be much more prevalent in the coming years, instead of the huge power centers that were more commonly developed in the last generation.

Now let’s talk about the CHALLENGES facing the industry.

  • Retail Development is still happening and retailers are still adding stores in Southern California, but it’s certainly not easy.  The panelists discussed some of their biggest challenges.
  • One is the shortage of land.  There just isn’t that much well located land left to build, so many projects are redevelopment projects where an old building is scraped to make way for new construction.
  • Then the government.  Almost every panelist, whether it was a tenant, a developer or broker, expressed frustration with government bureaucracy, whether it’s the entitlement process taking too long, restrictive zoning, environmental approvals, or just other government hurdles that are costing a lot of time and money to developers.  There was a general sense of frustration that city governments should be doing more to help streamline the process to help retailers survive in this difficult time.  There seemed to be a lot of city representatives in attendance at both events so I hope they were taking notes.
  • Labor.  Labor is a huge challenge nowadays for two reasons. One is the rising minimum wage, which is now $12/hr in California.  Retail jobs typically pay close to minimum wage, and now businesses have higher employee costs, not just at the minimum wage level, but also at the more experienced level and manager level.  Because you can’t just give a raise to the lowest paid workers without also giving a raise to the more experienced workers, as well.  Also, the cost of construction continues to rise, and that makes it that much for difficult for developers to work on projects that make financial sense for them.
  • Another big labor problem now in the Inland Empire, and this goes for retail as well as industrial warehouse employment is the shortage of labor.  Job growth in the IE is booming.  In fact, the IE has led the nation in job growth in the past 10 years.  Unemployment is so low that companies have to also spend more money on very nice facilities and employee perks just to retain their employees.
In conclusion, everyone on the panel still wants to develop, or open stores in California despite all these challenges to the industry, because the people want to be here.  Sure, the government makes it really hard to stay, but the weather makes the decision a lot easier.
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Mike Lin, CRE