Each retailer has its own hot buttons
TUCSON – Nancy McClure, first vice-president of CBRE in Tucson was recently interviewed by GlobeSt.com on the health of Tucson’s Big Box Space.
McClure says Tucson’s Retail big box space has had a healthy year of absorption with the bulk of the leasing happening in the core of the city while the peripheral areas of town continue to see big boxes remain vacant. As we’ve seen in the last several quarters since the slowdown of new housing construction, Tucson is definitely a Tale of Two Cities. The areas within the core with good locations and owners who are ready to make deals are seeing the bulk of transactions. Contrarily, those properties on the peripheral or that are functionally obsolete or have ownership that can’t seem to strike today’s deal structures are seeing boxes remain vacant.
McClure said, “The vacant peripheral boxes are former grocery stores. These are located on the fringe of town where the new homes were being built prior to the recession. Tucson’s homebuilding industry has yet to come back to a big degree. In our market, new home permits have been at about 1,300 per year, in a market of one million-plus people, for a couple years now—at the height of home-building, permits were above 13,000 per year. We need to see rooftops going up before those neighborhood center boxes get filled again.”
Tucson also has had a number of retailers looking for space where none exists. This has sparked new construction in the form of new ground-up and build-to-suit transactions, which is a welcome change of pace in the market.
“Typically, we are seeing build-to-suits happening where the retailers cannot find the right space in the targeted area; sometimes it is in the growth areas or, of late, it is in the core of town where there are densities of population, traffic patterns that compel people to the area to make the site a here and now location where the retailer will open with strong sales,” says McClure. “Growth area locations are often slow in sales on the front end, but grow with the community over time as more houses are built and people move in. Often, demographics of a community shift over time to different areas of the market; further, retailers like to locate where there are established hubs of retail to reap the rewards of the pull of customers and the synergy of cross-shopping. People lead busy lives; retailers know they have to make their stores easy to navigate and convenient to where people are going. As far as how a build-to-suit comes together, there is usually a center with a design that has future expansion capabilities.”
Looking at the numbers, the number of available box spaces has increased, and the questions from previous years remain: how deep is the demand with the retailers to fill those empty boxes and how much rent can they pay to justify the new construction? Retailers are consistently revamping their store footprints to try and evolve to find the right balance between accommodating demand for in-store shopping and e-commerce options.
“Most are looking at store sizes that are smaller than where they have been in the past, so some of the boxes were opened up because the retailers moved to smaller spaces, but there are some that have increased in size,” says McClure. “The dynamics of retailing is always fluid; any that stay stagnant are sure to be bypassed in the fast-paced world of retailing.”
Omnichannel retailing is presenting to the market. No longer are retailers able to count on shoppers doing things one way and those retailers who are embracing omnichannel retailing are winning. Most of the 745,856 square feet of vacant retail big boxes consist of spaces between 10,000-21,000 square feet with only eight vacant big box spaces of 30,000 square feet or greater. Arguably, most of the smaller footprints are not in the prime targeted areas and many are functionally obsolete. Those obsolete properties may be absorbed and the challenge moving forward is working to redevelop or newly-construct retail spaces that meet current retail prototype standards.
Of those standards, McClure adds: “Each retailer has its own hot buttons, but more often than not, big box retailers are looking for footprints with minimal support columns, high clear-height for the ability to stack merchandise and have a spacious feeling, big sign band, often wanting to sign more than one face of the building, with a tall facade for presence to the road, good loading dock and truck circulation, and an ample parking lot to accommodate customers.”
Many of the large format retail concepts looking to locate in Tucson have required footprints that are greater than what the majority of the market has to offer. User-driven construction will continue to happen to a moderate degree within the prime targeted areas, mainly mall hubs and along select interstate freeway interchanges. In order to bring new buildings out of the ground in Tucson’s core, old format, tired properties will have to be demolished to make way for new, updated prototypes. This type of development will require local government and adjacent neighborhoods to embrace change and allow for progress. In 2014, Metropolitan Tucson saw the expansion of many retailers, including Walmart, Summit Hut, Petco, TJ Maxx, Marshall’s, Circus Furniture, Christie’s Appliances, CVS, Guitar Center, Dick’s Sporting Goods, Conn’s and others. Additionally, Tucson saw the entry of new big box retailers to the market, including dd’s Discount and Natural Grocers. Real estate experts expect to see new vacancies in Tucson in 2015 due to the announced exit of Staples from the market and the consolidation of Office Depot spaces. Fortunately, the market has often enjoyed a pent-up demand for certain areas and the prime big box spaces should garner interest from retailers who haven’t been able to identify space in the past.
To read the full interview click here
To read the full Big Box Report Year-End 2014