ICSC LAS VEGAS REPORT: It’s a landlord’s market

Without question, one retailer was on the lips of everyone at this year’s bustling ICSC show in Las Vegas: Bed Bath & Beyond and the 500, average 30,000-sq.-ft. leases it was bequeathing to a starved-for-space industry.

At an ICSC trustee meeting prior to the opening of the exhibition, a question was posed as to how many retailers present would be vying for Bed Bath & Beyond leases and 20 hands shot up.

It was as if Springsteen announced a surprise free concert at T-Mobile Arena for everyone with an ICSC badge.

“The Bed Bath & Beyond leases will all go quickly and for higher rents,” said Kristin Mueller at the huge JLL booth at the entrance of the show’s Central Hall. Mueller last year took over from Greg Maloney as the global real estate service’s president of retail property management in the Americas.

Her colleague in the JLL booth, president of retail advisory services Naveen Jaggi, said that he found the market conditions surrounding this year’s convocation at the Las Vegas Convention Center unique.

“Rents have spiked to their highest levels in 20 years. New construction is at a halt. Landlords will build if retailers are willing to pay for it, but we’re stuck in the mud,” Jaggi observed. “Everything depends on the Fed. Will they raise interest rates again? Will they not? It’s impossible to predict.”

Across the aisle at CBRE’s equally massive booth, the same tune was playing.

“Landlords have a lot of leverage in curating their tenancies. They’re asking, ‘What is this retailer going to do for me?’” noted Brandon Isner, head of retail research for the Americas at CBRE.

But Isner said he believes the confounding conditions will prove a salve for retailers who are now actively using digital data and artificial intelligence from the likes of Placer.ai and PopStats to put right-sized stores in the right places.

”There have been some concerns about retail health but, really, the current situation is causing retailers to close stores that should be closed and keep open ones that should stay open. Party City is doing that,” Isner commented.

NewMark Merrill CEO Sandy Sigal, who manages 12 million square feet of retail assets in 95 western communities, agrees that tech advancements have changed the game.

“The consumer is recalibrating, and tech is telling us a lot about our customers that we didn’t know before,” Sigal said.

Centennial CEO Steven Levin, too, sees current market conditions as a jumping-off point for retailers forging their futures in a drastically changing environment.

“Developers of some of the biggest mixed-use centers going up today are going to put only 200,000 sq. ft. of retail in their projects. As a result, many established large-scale and well-located properties are going to be repurposed to meet the demand,” said the operator of 37 malls and mixed-use centers.

“Great retailers, therefore, have to find the best locations, because better locations find better capital and create a better project,” Levin remarked.

Another big mall owner-operator, Joseph Coradino, CEO of PREIT, said both mall owners and tenants need to be open-minded in order to control the costs involved in current renovations.

“At one we were working on, the tenant had a passenger and a freight elevator they wanted replaced with new ones,” said Coradino. “We said they’d have to settle for one new elevator or the rent would have to go higher than it already was.”

For the final word on the current state of retail real estate in America, we turned to Joseph Cosenza, vice chairman of the Inland Real Estate Group, a collection of companies that have owned and managed hundreds of millions of square feet of commercial property nationwide for the past 50 years.

"Industrial will still get built now,” remarked Cosenza. “I'd stay away from specialty retail at this point, but I'd do grocery-anchored anywhere at any time.”