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Retailers vs. Developers December 14, 2010

Posted by Sean Tufts in Articles, Blogs, Development, Retail News.
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Retail traffic posted an article today about the rise in retailers outbidding developers for vacant big box stores.  There are obvious economic factors that give the advantage to the retailer over the developer as stated in the article,

For tenants, the incentive is that they can acquire an empty site today at a steep discount to what the asset would have traded for three or four years ago. In the process, they can lock in lower occupancy costs than if they were to lease that same space from a developer. What’s more, they have greater control over their real estate.

Large retailers typically have low borrowing costs and are not looking to the asset to generate cash flow. Consequently, they are able to pay a premium beyond what an opportunistic investor would be willing to bid for the same asset.”

The biggest advantage I hear is about the unknown.  Developers remain paralyzed without a firm commitment from a tenant.  In the past, the optimistic view of the retail world was that eventually you would find a tenant.  Even as the tenant market continues to gather steam, we are a long way from developers gambling on deals like this.  Maybe that’s because now they have to use their own money!

In the Puget Sound we have seen only a couple of large owner/user purchases by retailers   This year these include Target’s purchase of 103k sf at Pike Plaza in downtown Seattle, Winco’s purchase of 104k sf in Tacoma Place Shopping Center, and Furniture Factory Direct’s purchase of a building in the Lakewood Cinema Plaza.  As more vacant big box stores go back to the banks and owners get desperate, we expect retailers to have plenty more opportunities.

The full article is here.

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