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Raub Report- Commercial Real Estate News for October 2017

October 17, 2017

 

So are the rumors of the Retail Apocalypse over blown?   In San Antonio we are actually doing okay.  Yes, you have seen some of your favorite stores go dark or very seriously renegotiate leases, like Payless Shoes and Rue 21.  The incursion of eCommerce has certainly left its mark.  The other factor weighing on bricks ‘n mortar retail is that the younger set is not spending money on fashion like previous generations had.  They just don’t care about appearances as much as having experiences and staying engrossed in their smart phones.  But off-price retailers like Ross, TJ Maxx and Home Depot are thriving.

However, in our fair city, based on rented square footage, the Third Quarter of 2017 saw an increase of over 84,721 square feet of space absorbed, versus Q3 of last year that experienced a loss of over 55,000 square feet, according to Xceligent. There is presently over a quarter million square feet of new retail space under construction, primarily in the North West and Far North Central, yet, the vacancy rate has declined from 8% to 7.3%.  Not bad, really.  The weighted average for asking rents even increased by 3.5% to $16.71 per square foot.   I think we should put the “kudos” on strong job growth, which produced 29,899 net new jobs over the past year, nearly a 3% growth rate.

In my opinion, we are seeing evolution not catastrophe.  Of course, when you happen to be the less competitive species, evolution is catastrophe. The battle for the survival of the fittest in retail is Godzilla, played by Wal-Mart, versus King Kong, played by Amazon.   Amazon continues to push the envelope on new ways to approach “the old ways of doing things” with their purchase of Whole Foods for $13-billion is a prime example.   The king of the virtual universe of eCommerce purchased a hip, but struggling grocery chain and voila, 70% of all Americans are within 1 hour of an Amazon Hub or a Whole Food Store which makes same-day delivery very do-able.  But wait, Wal-Mart is countering with ramping up their own on-line biz by buying Jet.com for $3.3-billion, a quick delivery company that says they can deliver anything to anyone in America in 2 days or less.  This increased Wal-Mart’s on-line sales by nearly 30%. Then, Wal-Mart has gone on to buy other eCommerce companies like ShoeBuy, Moosejaw and Parcel, who provides same day deliveries in New York City.  Wal-Mart will remain the U.S.’s largest retailer, at $347-billion in sales, where Amazon weighs in at $77-billion. Wal-Mart is also the largest grocery chain, serving the mass of Americans with average incomes, below the Amazon Prime crowd.   Whether you shop at or even like Wal-Mart, they have done more to hold down inflation, expand the shopping choices in small towns and create more new jobs than any other company in history.

So if you just want to buy stuff, you can go on-line and have it delivered to your door.  Location retailers must offer an experience to get buyers to leave their easy chair at home and bring him or her to their store.  They have to help the customer find clothes that make them feel good about themselves.  The new retail mantra is to help the customers enrich their lives somehow, not just engage in a transaction.

Bottom line: the evolution of retail marches on, morphing and changing to meet the customer’s new tastes and whims.