After a strong holiday shopping season, plus the passage of a tax reform bill expected to boost personal spending, industry experts are looking forward to an improved environment in the retail real estate sector in 2018.
Mixed-use centers are expected to be among the better-performing assets in the sector, as the industry moves away from shopping centers and enclosed malls and to properties that combine office, hotel and retail elements.
NREI recently caught up with Ron Pfohl, partner and director of leasing at Columbia, S.C.-based Columbia Development, a diversified commercial real estate developer. Pfhol offered insights into how the company is leveraging the current environment and why mixed-use properties are well-positioned to handle the changes in the industry.
This Q&A has been edited for style and clarity.
NREI: How did mixed-use centers fare during the holiday shopping season?
Ron Pfhol: I was at the Avalon (Alpharetta, Ga.), anecdotally, and when I was there you could not find places to park. That was encouraging, that we were seeing that. That did, in fact, translate to sales. I think a lot of that had a lot to do with … specifically Avalon and other projects that were executed well … It just showed a transition in just what customers are looking for. And I think that when they are executed properly, like Avalon, it really is an experience. It is just where the consumers are going. They want to go someplace that makes them feels better than having to do a task or a chore.
NREI: Is that experience particular to mixed-use center, or does it apply to any retail center?
Ron Pfhol: The mixed-use component offers the scale. Having people live there, the idea of having a hotel [as] part of the property, and the office—it all feeds into an experience that you cannot get at a typical center. I will caveat by saying I think those work really well when they are brand-aligned.
NREI: How does brand alignment happen in a mixed-use center?
Ron Pfhol: It has to happen with all the different stakeholders buying into a vision and having the discipline to stick with that vision and that idea. There are standards you have to live by, that you have to buy into it. Let’s take the different components of a property; two different components can have the highest impact on the character and the personality of a place. It would be the retail and it would be the hotel. If you have a hotel or two hotels on the property and that flag is the Ritz-Carlton or W or the Grand Bohemian line of hotels under the Autograph Collection, that is going to set a particular character for your property.
NREI: Are rent spreads healthy for mixed-use centers?
Ron Pfhol: They are very healthy. A lot of the character and the value is created on the street. So the types of retail and restaurants you put in have that permeating value throughout the entire property, and there is a big lift. We still are going to be very aggressive to get the brands that we want, the brands that we think will help set the tone and be that catalyst for other retailers to come in. Apartment rents in some cases have been healthy. There were 1,800-sf apartments above Anthropologie [at one center]. They are $3 per foot, and that is a significant jump from where rents were before this. It has had an effect all around, where they have all seen a lift. We have been having a lot of discussions with office developers. There is so much emphasis now on attracting and retaining talent. Employers are looking for that. The day of the suburban office campus is waning, and their whole focus now is they want mixed-use. They want their customers, tenants and employees to be able to walk out the door onto a vibrant street.
NREI: Where will investors look for opportunities?
Ron Pfhol: In town for sure. There is so much emphasis on people moving back in town that having a mixed-use component in a dense area is almost a no-brainer today. Millennials are moving in. Empty nesters are moving in. The walkability and all the things you get from living in town, I think it’s going to continue for a long time.