We may be seeing the first crest of the market and the beginning of a slow down:
Something that I am beginning to dig into and try to understand around downtown and specifically on the North Shore is what I will loosely call ‘ambitious asking rates’ for vacant retail spaces.
While it is clear that downtown and the north shore are ‘under-retailed’ by just looking at the increase in residential units and the changing demographics all the new construction is asking national retail rates for their spaces. This would work provided regional and national retailers were clamoring to plant their flags in the city. As yet that does not appear to be the case.
But the trend continues with proposed, in process and completed new spaces – even those like the retail adjacent to Whole Foods – asking for base retail rates of $25 – $30psf.
Simple math will tell you that the number of local retailers who can justify paying that kind of a rate ($75,000 – $90,000/yr on 3,000sf) is very very small and yet it continues and the properties do not seem to be motivated to do anything about it.
In my experience this type of thing occurs when those underwriting the project (bank / equity partner / etc) initially over estimate the potential retail rate in order to make a pro forma look better. This causes a situation where adjusting the rate to where the space will actually be leased is like admitting a mistake. It is rare that I see these things corrected before things become financially distressed or the person overseeing the project is replaced by a fresh set of eyes.
It’s good to be proud and to aim for being a first tier city capable of commanding national level rents it’s far better to grow the local retail base to support it. The loyalty of locals is invaluable to supporting these projects long term vitality.
This should boost increase in demand for office space downtown. Provided they expand adjacent to their current office location at 1500 Chestnut:
Maybe not the best looking building:
Hard to say you couldn’t see this coming:
Something I have now observed happening that I have a hard time understanding the is the move sellers listing their property for sale INCREASING their price after a property has sat on the market for a substantial period of time.
I first noted this phenomenon with 1010 Georgia when the sellers bumped the asking price from $3.2 – $3.5m for no real reason. The financials hadn’t seemed to substantively changed. The building is still a pretty serious rehab project with a self storage business mashed into it. So, where does the additional quarter million plus in value come from??
The second time I saw it was just last month with 621 E 11th Ave. A vacant ~9,000sf rehab project a block from the soup kitchen. Originally listed for $500,000, for most of this year, it suddenly bumped up to $600,000. While the listing notes that it will be delivered with a whole bunch of improvements none of those have been completed and no leases have been publicly noted so the increase in asking price seems very strange.
I will have to see if I see this occurring more in the future to call it a real epidemic but frankly it shows a substantial hubris to think a property that is not selling has somehow increased in value.
Back to basics: Supply and Demand.
A sign of the market conditions:
Northshore Self Storage opens. Same developer that bought Main St Storage:
Looks like the Davis family has decided to close up the auto business and sell off their building. Rumor has it under contract for $900,000 or $88/sf.
At just over 10,000sf I would speculate that the buyers are looking to do residential or maybe a mixed use project on the site.
More details as I get them