November 30, 2008
Mercer Grimes
Commercial Properties/Leasing
Power Realty Partners
What does this economic environment mean for the prospective tenant?
Plenty of places to pick from in the markets where retail was overbuilt. Still competitive in some niche markets where space was not overbuilt, typically in older or more urban areas.
What kind of incentives should that business request? Demand? Expect?
90 days up to one year free rent, buildout may be included. Some shopping centers in certain areas are offering rents half of what they projected in their pro formas. Some not quite so drastic.
What does that mean for these retailers?
Good time to be looking for retail space, but danger is going into one of these "drastically" reduced rent retail centers, only to discover that no one else will follow, or they may find that landlords end up leasing space to undesirable tenants, or tenants that "just don't fit" in a center, or obviously shaky tenants just to get warm bodies in.
Credit is tough to come by these days, so can "free rent" and buildouts paid for through leases put a retailer in business? Or is it jeopardizing them?
Free rent is great, the more the better, But I feel that landlords and tenants are placing themselves in a position to get a tenant in a space, they do not look at "will the tenant be able to pay the rent a year from now?"
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What about the North Fulton/South Forsyth market? What do you foresee for it? Are we better or worse off?
Very overbuilt. Cannot find tenants. "Uber-Franchising" has also hurt retail overall, meaning, there are too many operators going for the same market share. Everyone thinks that "if I get a franchise, it will survive". Franchise fever ruled the past 3 to 10 years. Just how many different franchises do we need to cut hair? Also franchises for everything ... who wants to eat at a franchise BBQ restaurant? Not me. A franchise barber? No. maybe i'ts just me. A franchise hamburger? Yes. Point is, some work, some (most) don't. I think that McDonalds will still be around and kicking in 10 years from now. Will someone's rib shack be around in 10 years? How about all the "indoor kids jumping tent franchises?" I am no Nostradamus, but I think I know those answers.
I asked/predicted three years ago: what will the retail landscape look like in 20 years? A vacant retail center (or should I say two or three) on every block? Well, that happened about 17 years sooner than I thought. It's just that instead or natural deaths, they died of a sudden plague (the downfall of the economy). This holds true not just for North Fulton, Forsyth, but all metro Atlanta. Everyone bought a new dress for the prom, but all of the dates disappeared. Just because zoning allows a certain use, that doesn't necessarily mean that the highest and best use is for that use.
What, if anything, can a tenant "stuck" in a long-term lease at much higher rates do when he sees significantly lower rates available out there?
If the landlord is willing, negotiations can be done.
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