The Future of Retail: Small + Big Potential

The future of retail is about to head in directions we never expected. We in the commercial real estate business could not be happier!

Retail is a tough market – the competition is cut-throat, the price of failure is quick and painful, and the future has always been a murky ball of something undefined.

The continuing death of shopping malls has been that dreaded elephant-in-the-room that retailers don’t dare speak of – as if the mere mention will cause manifestation like a poltergeist! Don’t fear change! There is a NEW retail about to change the future.

(Great article about the economics of dying malls by the NY Times – link in pic below)

Retail is about to be hit with a perfect-storm of technology, social media, and economic forces that will turn it into the next wave of commercial real estate. About time!

Think smaller, specific, unique, personalized, and connected – forget about the days of long rows of pants and shirts by the hundreds hanging around waiting for purchase, or waiting in long lines at the discount store, or even leaving a store with a pile of bags and boxes.

Where did all the employees go? – Leading the change in retail is the lack of employment opportunities – you just don’t need hundreds of employees to staff a retail store anymore – the growth of has been stagnant for many years as consumers are becoming quite sharp at arriving at a store knowing exactly what they are looking for – thanks to that thing called google, as well as numerous other pre-shopping sites.

Same day Delivery? – How about same hour! – Saved by the drone! What used to be improbable for retail brick-and-mortar is about to become a saving grace. No more leaving a store with a car packed full of bags, or carrying all those across a parking lot to your car. Delivery will be fast, cheap, and in that more saving to consumers who live locally – a BIG way to attract return customers and build clientele.

Shopping by visuals alone – Long gone will soon also be the days of walking long isles of cloths looking for your size. The new retail with be small and very specific. Walk into your favorite clothing store (one that caters to just your style) pick from a few basic categories of clothing, and change the color, weight of fabric, type of fabric, and then set the delivery directly to your home by drone. The size of shoes, pants, shirts, will all be saved and set specific for your style from store to store as you look.

This is just a few examples of the amazing new future for retail that is much closer than you think – it really opens your eyes to how adding current technology to the old-school retail experience can increase revenue for designers and manufactures, reduce the stress of shopping for buyers, and greatly reduce the footprint size of retail stores and the amount of inventory they need.

The Business Insider report is linked below and makes a great read – enjoy and FYI: now is a good time to start thinking about buying commercial retail space! The future won’t wait for you!

 

 

Newtons 3rd Law & Real Estate

But seriously. . .

Every action creates and equal and opposite reaction. This is one of the most basic laws of physics, and if you need a simple visual example then check the gif below. . . .

In an uncommon twist of physical laws, Newtons 3rd also applies equally to real estate financing, almost. For every action effecting interest rates there is a reaction, but too bad for us not always equal to the original action.

In our world of commercial real estate we see this in full effect. Interest rates not only affect loan rates, but possibly buying and sending habits that affect our tenants stores, and retail locations, and even medical when patents decide to not get medical help due to financial hardship, or postpone elective surgery until CC rates drop.

The real kicker is that the basic laws of the FED’s actions aren’t quite so precise as the mathematics used by Newton, and other great minds like Einstein or Hawking. Principles the FED uses are base on traditional financial ideals that were written in the 1800’s, and early 1900’s and have lost much of their meaning due to changes in modern society.

The reality is that the FED’s math is more like a Rube Goldberg machine. if you need to see a perfect example check the info graphic below for a mind bending eyes-wide-shut look into monetary policy at the federal level.

Recall that in December 2015 we got the surprise of the FED raising short-term interest rates slightly from record lows of zero – to a new high of between 0.25% and 0.50% – the slightest of nudges above the absurdity of zero.

Remember that way back in the mid-2000’s, when the Fed raised short term rates at 17 straight meetings hoping to cool the forming real estate bubble –  and mortgage rates barely budged higher and we ultimately ended up in a real estate bubble of epic proportions thanks to the FED’s pointless actions.

This past week there was another unexpected surprise to big chief economist all across the FEB, the average interest rate on a 30-year fixed mortgage went the other way, opposite of the short term interest rates. The FED expected by raising short-term rates it would raise long term rates and cool a potentially forming commercial real estate bubble.

Instead. the banks dipped the 30-year rate to 3.96% percent this week (from 3.97 percent last week) just the slightest of percentages causing home mortgage applications to soar.

The simple fact is our current economic policy is based on principles about as old as Newton, but unfortunately as convoluted and imprecise as Rube Goldberg’s  vision of mechanics. Our current stock market conditions are volatile and becoming more reactionary to even the slightest changes in consumer behavior or technological advances in energy production.

Our advice? Buy and hold. Return to common sense basics. Stop thinking short-term and go for the long-term investments of commercial real estate close to transportation, shorten the last-mile between your tenants and their clients and pick a smart property manager to keep your investment sound for the long ride.

Billions Headed into U.S. CRE

 

Congress is finally eliminating a 1980’s Reagan era protectionist inspired restriction on foreign investment into commercial real estate and the result will be billions of new dollars flowing into an already robust market.

The law, known as the Foreign Investment in Real Property Tax Act, subjects foreign investors to income tax when they sell U.S. property. It was initially passed in 1980, a time when there were fears that foreign investors including the Japanese might buy up large swaths of the country and its farmland.

There are those who might fear this new influx of capital into the commercial real estate market, as there are growing signs that U.S. markets have again flipped into the dreaded “B” side. Bubble economics or a return to market exuberance? Your guess is as good as mine.

“Life is 10 percent what happens to you and 90 percent of how you react to it.”

If you choose to react to the rising commercial real estate market in fear – by pulling back and waiting to see what happens for a few quarters or years, you risk missing out on a potential long-term boom.

At the same time that foreign funds are growing and flowing into the U.S. markets, we also have a huge number of older, original owner commercial properties coming onto the market. Many of there are baby boomer’s original investments and require complete re-habitation to be market worthy. Many of these sit in ideal location, or in locations with fantastic upside potential with rehab.

 

Waiting on the sidelines is not going to benefit you in the current market we are experiencing. The odds are that foreign investors (who typically purchase for very long term goals) will be the primary winners while U.S. investors (who typically invest with short term goals) sit out until after the next election – anticipating that some change in political leadership will give them a better edge. Bad idea!

The truth is that location, long term potential, and scarcity will win out over bubble busts and figure heads every time. Investing into commercial real estate now, while adhering to specific long term goals is the best bet NOW! When we take into account the rise of the millennial generation, and the growth predicted over the next 30-years you begin to see that the properties purchased today, in the best locations linked to transportation corridors, will become the stars of the future.

 

 

 

 

Location! Location! Location!

Location, location. . . you know the rest.

The 3-L’s are synonymous with residential real estate but many a professional often forget that commercial real estate has to abide by many of the same rules that apply to residential.

Here in San Diego – after years of very dry conditions we are experiencing levels of rain and runoff flooding that only happen on the 20 and 30 year cycles. Those cycles should not be considered as hard rules when considering a 10 year lease – or even a 5 year lease.

Some leases can offer a minimal protection from unforeseen events that stall your business and cut your expected monthly income – and sometimes insurance can help cushion the unexpected – but the best prevention is long-term planning that take into account natural events that can cause your business to close, stall, or even be interrupted for weeks!

From store-front to golf course – due diligence is as much a hard rule in commercial real estate as it is in residential, and in many cases the cost of picking a poor location can be far more damaging to a commercial business than a residential home.

Extreme weather events remind us that location can be everything!

Your first and best defense? Pick a proven leader in commercial real estate with local experience to guide you into a long term investment for your business – and always pick a location by its history!