I don’t think that this report at the Wall Street Journal by Kate King on how higher rents are pressing small retailers tells the whole story:
When the lease for Alex Macias’ furniture store in Mesa, Ariz., came up for renewal in 2021, his landlord asked for twice the current rent.
“In hindsight, they were saying, ‘Well, this is what a national tenant will pay. Can you pay that?’ ” Macias said.
Macias balked at the higher cost and closed the store. His landlord replaced it with Five Below, a national discount chain that has been expanding aggressively in recent years and agreed to the higher rent.
A lengthy stretch of scant new construction of retail real estate, combined with demand from expanding retailers, has reduced a longstanding property glut. Retail availability sits near record lows.
She concludes:
Phoenix has experienced some of the nation’s biggest rent increases this year. Prices there rose 7.4% in the second quarter compared with the same period in 2023, according to real-estate firm JLL.
Macias, the furniture-store owner, was able to solve his rising-rent problem by reopening in a building that he purchased.
His former landlord, Joshua Simon of SimonCRE, said the furniture store had been paying below-market rent.
For many of the city’s small businesses, developing a close relationship with the local landlord is crucial to survival. Sarah Bingham, co-owner of the vintage clothing store Antique Sugar in downtown Phoenix, said her landlord recently offered to buy her out of her lease so a restaurant he was an investor in could take her space.
I suspect that what she’s reporting is highly variable depending on location. I have no reason to doubt her findings about Phoenix.
But I could turn on my smartphone’s camera, start walking west, and pass dozens of empty storefronts, some of which have been empty since long before COVID. I’m not entirely sure why there’s so much available retail space here. Declining population, more people in this area shop online, high taxes, it could be all sorts of things.
It reminds me of the old wisecrack about farming that there’s either not enough rain or too much rain. How much retail space is enough? How do you know when you’re overbuilt on retail space? How about office space?
When I drive around coal country most of the storefronts are empty. I think it’s mostly a regional phenomenon. Las Vegas went through this a few years ago when it had its major growth spurt.
Steve
“I suspect that what she’s reporting is highly variable depending on location. I have no reason to doubt her findings about Phoenix.”
I’m sure that is correct. As is this:
“Declining population, more people in this area shop online, high taxes, it could be all sorts of things.”
Brands wither and die. Refreshening of the footprint requires capital. etc Most of retail is faddish or very transitional by nature. Look at gas/retail like Buccees or Raceway. It doesn’t cut it to sell candy bars and potato chips at the Shell anymore.
Seems to me the only things you can really identify are the big trends, and that would be online shopping, covid work-from-home, and rentals. If you want to be in commercial real estate these days you want to be in multi-family housing.