Sunday Summary: Is Retail Really Back?

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The first full week of December is in the books, and that is usually the time that Innovating Commerce Serving Communities (ICSC) rolls into the Javits Center.

And the mood at ICSC 2023 was … not bad?

SEE ALSO: Brooklyn’s Retail Market Sees Strong Leasing But Lagging Asking Rents: REBNY Report

“Our biggest obstacle is perception,” Alex Sagues, a broker out of CBRE (CBRE)’s San Francisco office, told Commercial Observer.

“The European luxury brands are still looking at the usual suspects here: San Francisco, L.A., Miami,” said Sagues’ CBRE colleague Brandon Isner. “Those are the safe bets, but they’re also looking at places like Charleston.”

And New York isn’t too shabby either when it comes to luxe. Isner pointed to Saint Laurent’s September deal for 13,000 square feet in the Meatpacking District as an example.

Last year’s fears of a recession sounded overblown to the pros CO spoke to at ICSC.

“How can you have a recession when you have low unemployment?” asked Naveen Jaggi, president of retail real estate at JLL (JLL). “Do we have a real estate recession on evaluations? Absolutely. Capital Markets are frozen because of the high debt costs. So do we have a consumer recession? We haven’t heard that yet. Consumers haven’t really pulled back yet, and retailers aren’t talking about a significant pullback. The little that we’ve seen is directly related to the war in the Middle East.”

As for anecdotal evidence, it certainly didn’t look last week like retailers were shying away from deals.

In Miami, for instance, the French cafe Maman inked its fourth lease in South Florida at one of the premier addresses: 830 Brickell. (Maman is up to 30 locations on the East Coast.) And in South Beach a single-story retail building at 1401 Washington Avenue traded hands for $8.5 million. 

In Southern California, Foothills Plaza bagged tenants Sprouts Farmers Market, Daiso, Water Wings, Hotworx Yoga and Prizm Dental, bringing the 64,522-square-foot mall in LaVerne to full occupancy.

In Washington, D.C., Brookfield Properties and Douglas Development leased 8,546 square feet to Flight Club, a darts/British pub concept at 655 New York Avenue NW.

But beyond individual deals we also saw some good trends in retail. While food halls are nothing new, they continue to be the answer that a lot of developers and their bankers seek to ease their worries. Since 2018 the number of food halls around the country has doubled, according to Cushman & Wakefield (CWK) data, and another 147 are in some stage of development.

“The money will go with those owners that show that they can adapt and continue to change their mix to make it relevant, and I think that they’re the malls that are beginning to differentiate themselves from others,” said C&W’s Richard Latella. “With such a trend going towards food and entertainment, food halls keep people at the malls longer if you have the right mix and the right profitability. It’s very important for the operator, and I think many of the operators have recognized that.” 

Indeed, money is apparently out there for good retail or hospitality.

Flag Luxury Group’s COO Dayssi Olarte de Kanavos sat down with CO to discuss the $100 million Flag just put into redeveloping the Ritz-Carlton South Beach.

And we were pleasantly surprised when we saw the refinancing Macerich closed for $710 million (!) for Tysons Corner Center, the 1.8 million-square-foot shopping center in Northern Virginia.

Snap decision

Is retail the only ray of light in an otherwise cloudy skyscape of shaky asset classes?

“I think the good news is that we’re at the point where I don’t think it’s going to get worse and sequentially it’s going to get better,” Newmark (NMRK)’s Barry Gosin told CO’s Cathy Cunningham at the Real Estate Board of New York’s annual commercial brokerage holiday luncheon. “I’m fairly optimistic about the next couple of years.”

Sequentially it’s going to get better is not exactly the kind of sentiment that would fit on a bumper sticker, but it’s something to take to heart.

And, indeed, there was some interesting activity that we noted, particularly in office leasing.

PJT Partners went from an 80,000-square-foot sublease to a 130,000-square-foot direct lease at SL Green (SLG)’s 280 Park Avenue, bringing the investment bank’s total footprint to 270,000 square feet. Speaking of SL Green, it also persuaded Stonepeak Partners to ditch its space at 55 Hudson Yards for 76,716 square feet 245 Park Avenue. (SL Green is finishing the year strong — it also announced a plan to convert 750 Third Avenue into housing, and it sold 625 Madison Avenue to Related Companies.) And the merchant bank BDT & MSD Partners took 70,000 square feet 550 Madison Avenue.

However, there was some not-so-great news, too.

One of the heavyweights of CRE was delivered a blow when Moody’s downgraded Vornado Realty Trust’s debt and preferred stock rating to junk, citing the REIT’s risk of being unable to keep up with debt payments and other fixed charges.

Oh, and the 20,000 New York City office cleaners, porters and superintendents who are members of 32BJ Service Employees International Union are in heated negotiations with the Realty Advisory Board (RAB) over their next contract, and the S-word (read: strike) has been bandied about.

And we’re not sure it’s great news when one of the biggest tenants in New York (Verizon) hires one of the biggest brokers (CBRE’s Howard Fiddle) to begin marketing their space at Essex Crossing for a sublease. But that also happened.

Same goes in Southern California. We found out that Snapchat is cutting around 160,000 square feet at Santa Monica Business Park (SMBP), but sources told CO that it could be as much as 300,000 square feet. Not good.

Are we forgetting something?

All this is prologue to the main event…

Last week CO unveiled one of our favorite issues of the year — Young Professionals!

This package consists of interviews and profiles of the 30 leading leasing and sales brokers under 30 years old; 25 top debt and equity brokers under 35 years old; and 20 of the best architects, engineers and contractors under 35.

Figuring out who goes on this 75-person list is a pretty big lift. (For some insight into our methodology and off-the-record thoughts, check out this week’s “Back Story” podcast.) There were some names that were heartbreakingly close to the birthday cutoff. And this year we were inundated with more entries than we’ve ever had before.

But reading through the honorees is also the kind of breath of fresh air that the industry can use.

From Cushman & Wakefield’s Zach Kraft, who has been pounding the mean streets of New York to drum up $334 million to refinance 2505 Bruckner Boulevard; to retail maven Una O’Brien-Taubman of Capricorn, who’s been working with clients ranging from Catbird to Steve Madden; to Jenny Ni Zhan at Bromley Companies, who has been overseeing construction budgets for major projects; to Reality Curry of Hill West Architects, who has been designing affordable housing in Queens; to Aaron Hancock, who has been managing Artemis Real Estate Partners’ $500 million emerging management investment platform, they are a scrappy, no-nonsense bunch.

The whole list is worth a nice leisurely Sunday read before you head off to the holiday market.

Happy Hanukkah!