High-Street Retail in an Adjustment Phase

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GlobeSt.com

High-street retail is going through an adjustment period—much like all retail asset classes. Both institutional and private investors are looking carefully at market fundamentals and property fundamentals, but for properties that check the right boxes, there are still active buyers. In some cases, even bidding wars.

“Street retail properties are going through a level of adjustment and evolution similar to what we are seeing in other categories of retail,” Carlos Lopez, EVP at Hanley Investment Group, tells GlobeSt.com. “In ideal, select markets, prominent, street retail properties continue to attract buyers. In today’s market, whether an institutional buyer or private capital, buyers and lenders are carefully looking at the real estate fundamentals of a property, whether it is a high-street property, grocery-anchored shopping center, power center, a strip center or a single-tenant retail asset.”

Hanley has seen the trend on some recent deals. It closed a high-street deal on Robertson in Beverly Hills with a 28% vacancy. However, the market fundamentals told a compelling story that resulted in multiple offers. “The investment included the opportunity to lease-up a 2,425-square-foot, endcap space on a high-visibility corner located less than one mile from the Golden Triangle,” Lopez says. “Despite the 28% vacancy, Hanley Investment Group generated multiple, qualified all-cash offers within the first several weeks of marketing the 8,745-square-foot multi-tenant retail property. The sale price was $8 million, representing $920 per square feet.”

The deal wasn’t an anomaly. Hanley also brokers a multi-tenant high-street retail sale in Long Beach at Second and Santa Ana Avenue formerly occupied by Citibank. While investors are being cautious on retail deals, this opportunity also generated multiple offers. “The two-story, 8,991-square-foot, Spanish Colonial Revival architecture-style building, built in 1952, is one of the few remaining commercial buildings on 2nd Street that retains its original architectural appearance. It was also the first time in nearly 20 years that this property had been available for sale,” says Lopez. “Although Citibank is no longer occupying its 5,900-square-foot space on the ground floor, Hanley Investment Group still generated multiple competitive offers within two weeks of marketing this property.”

The properties that are trading have a lot in common. “The properties that are selling have solid fundamentals including market rents (or below-market rents), strong tenant sales, long-term leases or potential for tenant retention and re-leasing,” says Lopez. “In the past, many investors might have been just looking at where the property is located; like anything works in Beverly Hills due to the high household income and population count, but that is just not the case in today’s market. Strong real estate fundamentals still need to be there to attract buyers.”