By Shea Van Hoy – Editor-in-chief, Louisville Business First
Sep 3, 2024
A professional perspective is always appreciated.
LBF did a Q&A with Justin Baker, principal broker and partner at TRIO Commercial Property Group, which ranks No. 1 on LBF’s most recent list of CRE brokers in the retail space. TRIO had about $167 million in retail volume in 2023.
Here’s what Baker had to say about some of the hot topics in the sector:
What’s something encouraging (and something discouraging) about the current Greater Louisville retail real estate market?
Louisville’s retail market is experiencing significant growth. New developments anchored by major retailers like Publix, Kroger, Hy-Vee, BJ’s Wholesale Club and Wawa are driving significant expansion.
The arrival of new-to-market retailers such as REI Co-op, Bank of America, Dutch Bros, and 7 Brew further enriches the market.
However, the Downtown core presents a challenge. Declining office occupancy has led to reduced foot traffic, impacting retailers and forcing adjustments like closures, relocations or reduced hours.
What areas of Greater Louisville are the hottest for retail absorption right now?
Northeast Jefferson County, specifically the Springhurst and Paddock Shops area, is currently Louisville’s most sought after retail corridor. That trade area will have the addition of Publix, the newest Kroger, REI, Fresh Market, McDonald’s, Zaxby’s and Sherwin Williams with several more outlots to be developed.
Other high-performing retail submarkets include Fern Creek at Interstate 265 and Bardstown Road, St. Matthews and Middletown, which continue to experience rapid lease absorption.
We’ve seen an influx of coffee chains — is this a trend that’s happening in similar markets? Drive-thru-only concepts like Dutch Bros, 7 Brew and Scooter’s have expanded rapidly, especially since the Covid-19 pandemic.
Consumers appreciate the convenience of these models. By eliminating the need for dine-in spaces, these businesses reduce overhead costs, allowing them to offer more competitive prices.
What affect has a tighter lending market for small businesses had on the CRE retail sector?
The economic climate has significantly challenged small businesses and new retail developments. While existing retailers strive to maintain operations, ground-up projects face substantial hurdles.
Soaring interest rates, escalating construction costs, and retailers’ reduced rent affordability have rendered many development pro formas infeasible.
What amenities or perks are retail tenants looking for at the moment?
Retail tenants are increasingly demanding higher tenant improvement allowances and extended rent-free periods to offset startup costs. These concessions reflect the challenging economic climate and the need to mitigate initial business expenses.
What trends should readers be following in the retail sector over the next few years?
While grocery stores remain the primary anchors for new developments, there’s a growing trend toward experiential concepts like Topgolf, Sky Zone, Puttshack and pickleball venues.
Traditional brick-and-mortar retailers face significant challenges from e-commerce and rising rents. However, advancements in technology offer opportunities to reduce costs, boost efficiency, and enhance customer experiences.
Anything else our readers should be aware of?
It’s worth mentioning that retail real estate is at an all-time low in vacancy rates. Bankruptcies of national retail brands free up space for new and better brands to backfill. This is good for the landlord because they can increase rent and value.
It’s good for the city because the new occupier will enhance the retail synergy, consumer experience, number of jobs and retail sales tax.
Rent is a product of sales. Retailers need higher sales to pay more rent to make the deal affordable to the developer/owner. With economic pressures, the consumer is shopping down.
Discount retailers are winning right now. Recent reports from Home Depot and McDonald’s indicate a potential slowdown in consumer spending and many national retailers are adopting a wait-and-see approach to new deals until after the election
Finally, keep a close eye on interest rate movements. As inflation is projected to decrease, it could have a substantial impact on rent and retail property valuations.
