With Few Comps, Retailers Emphasize Sales Volumes

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When deal volume is down, it is naturally more difficult to determine “fair” rents because there are fewer property comparables to use.

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To aid in that process, retailers have become increasingly reliant on sales volumes, Ariel Schuster, a vice chairman at RKF, told Commercial Observer at International Council of Shopping CentersRECon event.

He noted that while it is “not binary,” using sales volume has become “more prevalent.”

Sales volume has “always been important,” added Andrew Mandell, a principal of Ripco Real Estate Corp., “but it’s more important today since the correction has been taking place in the last 18 to 24 months.”

While brokers may not be privy to a comparable store’s sales figures, often retailers will share that information among themselves, Mandell added.

Richard Hodos, a vice chairman with CBRE’s New York tri-state region retail services team, explained that retailers will use a similar retailer’s sales figures to “project their own sales and compare their projected rent against their projected sales.”

In addition to that metric and property comps, Hodos said his clients look at occupancy costs as a percentage of sales, return on investment and internal rate of return as well as the “number of years to pay back the investment.”

Looking at sales volume is imperative in “a very small market where there may be few comps,” Mandell said, like at his assignment at 147 East 86th Street at Lexington Avenue, where late last year he signed Old Navy to 18,500 square feet of a 30,000-square-foot retail space, as CO reported at the time. He added that West 34th Street has a similar issue, as rents between Fifth Avenue and Avenue of the Americas are much lower than those between Avenue of the Americas and Seventh Avenue.

It’s “hard to come up with comps when there are so few stores,” he noted.