Problematic outcomes as real estate investment trusts buy more "high street" retail real estate
The National Real Estate Investor magazine reports ("REITs Will Pursue Street Retail More, Analysts Predict") that real estate trusts operating on a national basis in high value markets are buying properties in high profile traditional commercial districts--but not just in big cities, but in "secondary markets" like Savannah too--because it can be more profitable than other types of retail-related properties.
From the article:
Street retail offers landlords some other advantages as well, noted Ken Bernstein, president and CEO of Acadia Realty Trust, during a conference call on May 12. The supple/demand ratio there tends to be more favorable to landlords than at suburban retail centers. The leases are shorter, so there are more opportunities to raise rents. And annual contractual rent growth is close to 3 percent, above that for suburban locations. The street retail play has proved so successful for Acadia, the REIT is investing not only in established locations, but in what Bernstein calls “next generation” streets like the Bowery in New York City and Broughton Street in Savannah, Ga. These areas offer “higher risk and, hopefully, higher returns,” he notes.As more properties and commercial districts are repositioned and cease being local markets but instead are integrated into national real estate markets, it will become much harder for independent businesses to get leases, plus rents will go up.
For his part, Sandeep Mathrani, CEO of General Growth Properties, talked about the unique branding value that street retail holds for chain retailers. He noted that three of today’s most successful global fast-fashion chains—H&M, Zara and Uniqlo—first attempted to break into the U.S. market with stores at regional malls, with limited success. It was the opening of flagship stores on high streets, particularly in New York City, that brought them the kind of brand recognition that allowed them to expand throughout the country. Locations on urban high streets create a branding opportunity, drive sales and allow retailers to display their entire merchandise collection, Mathrani said.
REIT involvement is already a potential problem in cities, because traditional "pure play" REITs don't like dealing with mixed use properties.
That's why we have single story drug stores on streets like Georgia Avenue NW, at major intersections.
The underlying property owner, a REIT, doesn't want to deal with building, leasing, and managing multiple floors and multiple tenants, even though such buildings are preferred for urban design and city vitality reasons.
Elsewhere in DC, as REITs have acquired properties in Dupont Circle and Cleveland Park, independent businesses have been displaced in favor of chain retailers, banks, and other "credit tenants" ("Is a National Credit Tenant the Best Choice for My Retail Property?," Huffington Post).
The Washington City Paper wrote about this in 1999 ("Blocked Out: As the investors flow into a Dupont Circle block, so does the antiseptic." when Starwood Urban Investments bought properties at the corner of Connecticut Avenue and R Street NW and kicked out the funky and independent Newsroom (a great store carrying periodicals from around the world, but that retail category is dying these days) in favor of a branch of Commerce Bank (now TD Bank).
A few years ago, the property was sold to Acacia REIT, a firm mentioned in the