Most Expensive Retail Addresses

I found this list of most expensive retail addresses at SecondCityStyle.com.

10. Gangnam Station
Seoul, South Korea
Price-per-square foot, per year: $431

9. Ermou Street
Athens, Greece
Price-per-square foot, per year: $451

8. Pitt Street Mall
Sydney, Australia
Price-per-square foot, per year: $489

7. Bahnhofstrasse
Zürich, Switzerland
Price-per-square foot, per year: $492

6. Grafton Street
Dublin, Ireland
Price-per-square foot, per year: $669

5. Ginza
Tokyo, Japan
Price-per-square foot, per year: $683

4. New Bond Street
London, U.K.
Price-per-square foot, per year: $814

3. Avenue des Champs-Elysees
Paris, France
Price-per-square foot, per year: $922

2. Causeway Bay
Hong Kong, China
Price-per-square foot, per year: $1,213

1. Fifth Avenue
New York City, N.Y.
Price-per-square foot, per year: $1,500

$1,500/sf annually! For a small 1,200 sf space the annual costs in rent would be $1.8M. I don't even know if that includes CAM, tax and insurance as well!

I would be naive to say that is truly expensive. Really, it's a function of sales and traffic. We see that each industry has their average percentage of revenue allotted for rent. Many companies that I have dealt with can usually designate around six percent of their annual revenue to rent. So, if in NYC a particular store can achieve $30M in sales from a 1,200 sf storefront then it may be a good deal. Right?

In contract a pretty good 1,200 sf storefront in Birmingham might need $400,000 in sales to get a similar return.

Burrr.... Lifestyle Centers

According to a recent article by KeyPoint Partners, the lifestyle or open-air retail developers are cold. Development is down 60% to 70% among some developers.

So far the Birmingham market has experienced a moderate slow down in retail activity, but I have yet to notice any of the larger centers having large vacancy increases. A slow down in development is one thing, but large amounts of vacancy in a market can get pretty nasty.

I have noticed that landlords are now becoming receptive to the market. One particular retail project that we are working on leased at $22 per square foot a year ago is now at $19 per square foot.

So what do you do if in a market like this? Landlords, try to sign shorter term leases. If the market improves, you have a quicker opportunity to increase rents. Speaking of increased rents, you may want to consider higher than normal annual rental increases that are built into the lease. Over the term of the lease these annual rental increases can help re-establish your property's value. Tenants, the advise is opposite. Try to negotiate longer term leases with options. If the market increases in value you are renting as below market rates. Don't forget your sublease clause. If the business doesn't work out, you might can make money in real estate by subleasing at a higher rate.

Valuation of a Lease Proposal

Valuation of a prospect to lease space can be difficult. Say they offer to lease the space at 10% less than the asking price. What is the effect? Maybe one questions to ponder is how time is a factor on leasing the property. The difference between $22/sf and $20/sf is (drum roll...); $2/sf. $2/sf for 2,000sf over a term of five years is equal to a total aggregate value of $20,000. Rent today is equal to how much rent tomorrow? What is the break even of time on the market to reach the higher rent.

$20,000/3,333 (the monthly rent proposed) = 6 months.

So, if you don't secure a tenant at full price within six months,

Birmingham: Land of Prosperity

Okay so since this blog has some exposure outside of Alabama, some of you might say, "where's Birmingham?" So what... It's not Atlanta, Chicago, or New York, but at least we're stable. Good ole B'ham steadily plotting along with modest increases in value year after year. Even in a down market I must add.

See the article here.

Is Marketing Important?

You better believe it is! I couldn't believe it when it came to my email today. A property owner sent an email to me with two attached pictures and a subject line that read something like, "for lease".

What is for lease? How much? Where is it located? Thank goodness I am a "hungry" real estate agent and looking for opportunities. I took the time to email them back; "I noticed that you have space available. I think our marketing materials and channels of distribution could help promote your property. If more prospects see your property, don't you think that will positively effect your results?"

It made me think about what we do. We install signs, send information to area agents, local prospects, as well as distribute property information to state and national databases where prospects search.

Properly marketing does make a difference in value. The more potential prospects that are informed about your property the better. Right? Well, at least I do know that bad marketing is horrible. I mean most folks wouldn't even reply to such an email as is above.

One popular marketing thought: the more prospects that see a product and a short amount of time results in the highest possible sales price.

Starbucks Closings: Is one near you?

Earlier this month, Starbucks announced that they would likely close some 600 stores and establish 200 new stores for a net store reduction of 400. So is your caffeine fix in jeopardy?

The Seattle Times has established the Google map shown below identifying rumored closings. No store closings (opportunities) in the Birmingham, Alabama area. The only rumored closings in Alabama are in the Mobile area.


View Larger Map

Commercial: Maybe Not So Bad

A recent article from the Birmingham Business Journal sites that though residential construction continues to be in a downward trend, the commercial construction market shows a little hope.