Big changes bring big activity to healthcare market

0824-13

by Dan Rafter

When Bob Titzer looks at the healthcare real estate market in Chicago and across the Midwest, he sees plenty of activity. Hospitals are building new medical office buildings in urban areas and suburbs. Developers are expanding existing hospitals. And medical groups are opening ever more free-standing clinics and emergency rooms.

But what is behind all this activity?

Titzer, executive vice president of HSA PrimeCare, points to one factor: change.

“The medical office building market is strong and it is active,” he said. “And the underlying reason for that? There has been a lot of change in the healthcare industry. These changes in the industry, the growth of healthcare in general, has made this an extremely active market today.”

Big changes

What are the big changes to which Titzer is referring? First, there is the aging of the U.S. population. As the country gets older, people visit doctors more often and end up in the emergency room more frequently. They also schedule more elective surgeries and submit to more medical testing.

At the same time, health insurance is available to more people today. That, too, has provided a boost to the healthcare real estate market. Hospitals and medical groups need more facilities because they are serving a greater number of patients.

Finally, there is consolidation. Doctors today are combining into larger medical groups. These larger groups are opening new offices in new locations.

And these new offices aren’t only opening in the middle of big cities. The suburbs is seeing plenty of medical office activity, too, Titzer said.

“The activity is definitely spread around,” he said. “For us, Naperville has always been a strong area for medical office activity. But in all of the suburban areas where population growth is the strongest, we have seen strong activity in the medical office building sector. Naperville is just one example. We are seeing new facilities, say, in New Lenox, too. It’s the same story there: There is simply more demand for medical office buildings throughout the Chicago area.”

A long-term trend

Titzer doesn’t expect this activity to slow anytime soon. Hospitals and medical providers have changed their delivery model. This is largely because of the changing demands from patients.

Patients no longer want to drive as infrequently as possible to large hospitals. Getting to these major facilities can be a hassle. Patients don’t want to work their way through sprawling parking lots just to get a routine medical test.

“There is an effort on the part of healthcare providers to bring their medical services out to where the consumers are,” Titzer said. “They want to make the process more efficient. A hip replacement or a knee replacement that once was done at a hospital can now be done in an outpatient setting. These procedures can be done in some neighborhood in the suburbs. Formerly, that patient had to go downtown or to a hospital in a further-away suburb. Now everything can be done closer to home.”

And that convenience factor really is the number-one amenity that patients are demanding today from medical office buildings.

While new apartment buildings today need to provide such amenities as rooftop pools and high-end fitness centers, and modern office buildings need flexible layouts and plenty of bike storage, medical office buildings need to provide one main amenity: ease of access.

“It needs to be easy to find and easy to park,” Titzer said. “Patients want it to be easy to get from their parking spots to the front door. That’s why medical office buildings don’t have steps, don’t have any barriers to entry. They lack convoluted entryways. They should also have a nice lobby. A lot of patients who come to these centers are mobility-impaired. They need to be easy to get into and out of. Some might come with amenities such as a coffee bar. That is great, but patients are primarily looking for ease of access.”

Titzer predicts that the medical office market in Chicago, its suburbs and across the Midwest will only grow stronger in the coming years. After all, the U.S. population isn’t getting younger, and more people continue to gain access to health insurance.

At the same time, older medical office buildings will become outmoded in the eyes of patients, and will need to be replaced, Titzer said.

“There will be a continued demand for newer and more modern facilities,” Titzer said. “Older facilities are having a harder time attracting tenants today. There is already a migration toward newer, nicer facilities. That will continue. Some of the older facilities will be repurposed into more modern medical office space. But it can take a significant investment to do this. Some will be converted into other uses, and some will be torn down or used for office space.”

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Thriving as a brick-and-mortar retailer today? It’s all about creating experiences

retail-trends-feature-freedom-commons-strip-center

by Dan Rafter

Chad Firsel doesn’t hesitate when asked what makes for a successful brick-and-mortar retailer today: Those retailers that are thriving are offering experiences, ones that can’t be duplicated online.

Firsel, president of Chicago’s Quantum Real Estate Advisors, points to restaurants. You can’t replicate the dining out experience online.

“That can’t be replaced by a computer or an iPhone,” Firsel said. “It’s very simple. People still go out to eat. They still want an experience. Those goods and services that can’t be replicated online are the ones that are the strongest today.”

Firsel isn’t alone in this belief. Retail brokers agree that those brick-and-mortar businesses that are adapting to ecommerce instead of fighting it, are those that are most likely to succeed today.

Evolving, not fighting

Erin Patton, vice president of investments and senior director with the national retail group of Marcus & Millichap, said that necessity-based retailers such as restaurants, gyms and grocery stores are the strongest performers today.

That’s because consumers can’t exercise over the Internet or can’t squeeze a peach online.

“It used to be, how can we beat the Internet?” Patton said. “Now, there is a broad-based acceptance from retailers that they have to work alongside the Internet. They have to co-exist with the online world. Many traditional retailers are embracing e-commerce. At the same time, Amazon announced that it is opening something like 100 small-shop spaces. There is a balance there. I think in most cases, brick-and-mortar and online can co-exist. This is the future. Convenience is what is most important to shoppers.”

Patton said that every retailer is meeting this challenge in a different way. She pointed to department store J.C. Penney. Today, this long-time retailer is heavily promoting and focusing on items such as furniture, household goods and makeup. These are items that consumers want to go out and shop for. They are less likely to purchase these items online.

“That’s a great example of how someone is embracing the current environment and working around it,” Patton said. “They are modifying what they sell. They are modifying their approach to meet the ways in which consumers shop today.”

Fast-casual on the rise

Firsel and Patton both agreed that fast-casual restaurants are seeing steady growth in today’s market. Again, it comes down to an experience that consumers can’t get online.

Euromonitor reported that the fast-casual market has grown by 550 percent since 1999, with consumers spending an estimated $21 billion in this segment since 2014. A report released earlier in 2016 by Technomic identified such fast-casual chains as Blaze Pizza, MOD Pizza, Panera Bread, Freshii and Sweetgreen as players who are seeing strong sales growth today.

Patton said that fast-casual restaurants are performing well because consumers today want to spend less money than they would at a traditional sit-down restaurant but also eat healthier and tastier food than they would get at a chain such as McDonald’s.

“It has been a steady evolution,” Patton said. “Providing an experience is becoming very important for consumers. That is what they are going out of their house to do. They don’t want to just pop into a shop or pop into a restaurant. Instead, they want to have an experience. That is driving the push for more fast-casual choices here.”

The fast-casual market is bringing changes, too, to more traditional fast-food offerings. Burger restaurants, for instance, are getting a fast-casual makeover today, with specialty burger chains eating away at the business of traditional fast-food burger providers.

The same is happening at pizza chains, with Patton saying that make-your-own pizza concepts have steadily grown in popularity in both the Cleveland and Columbus markets.

“It’s all about having a new take on a traditional idea,” Patton said. “We are seeing these concepts usually appear in mixed-use developments. In these developments, it is about providing experience.”

Firsel pointed to retailers such as Crate and Barrel and Bed Bath & Beyond as an example of two that have managed to merge their online and brick-and-mortar components together.

“People get married and they set up their registry online. Then 80 percent of the guests go online to buy their gifts for the registry. No longer do they have to go into the store to do this,” Firsel said. “But before the people set up their registries online, they go into the physical store and pick out the items themselves. It’s tough to see if you really like a glass or bowl online. Then, if they need to return something, they go into the store to do it. That is how Crate and Barrel embraces both online and physical stores.”

Firsel said that brick-and-mortar retailers have already suffered through the worst of the damage that ecommerce has brought. Now, it’s a matter of those retailers that have survived to continue to adapt their business models to actually take advantage of ecommerce.

“The Internet will never beat walking into a store and walking out with a good,” Firsel said. “The successful retailers are taking that omni channel retailing approach. The store subsidizes the Internet and vice versa. That is the approach being taken by the ones who are winning and surviving.”

Not all are thriving

It’s little surprise that many retailers are struggling today. Even without the threat of ecommerce, brick-and-mortar retailers face many challenges today.

Yes, the economy has steadily improved. But many consumers are still wary of making major purchases. Others feel as if the economic recovery has left them behind.

Firsel said that electronics and athletics retailers are both struggling mightily today. The shutdown of Sports Authority is a good example. As Firsell says, Dick’s Sporting Goods is about the only major sports retailer still in business today.

“It’s really sad, to be honest,” Firsel said. “Half the clothiers out there are going out of business. Book stores have struggled. Electronics and sports goods stores have all struggled. Even a lot of hardware merchandise is going online. We haven’t seen many new Home Depots opening lately. Target has only built a half-dozen stores in the United States in 2016. It used to build 150 a year.”

Other strong players

The grocery end of the retail market remains strong, but is a market that is broken into three main parts, Firsel said. Stores such as Walmart and Aldi target those shoppers looking for the most affordable of groceries, while mid-tier grocers such as Trader Joe’s, Mariano’s and Jewel target those shoppers willing to spend a bit more for a higher-end grocery experience.

Finally, there are the higher-end markets such as Whole Foods and higher-priced specialty markets, Firsel said.

All of these types of grocers expanded significantly in the Chicago area and throughout much of the Midwest in 2013, 2014 and 2015, Firsel said. Today, though, that expansion has slowed, not because the grocers are struggling, but because they have already completed much of their expansion plans. The exceptions is Aldi, Firsel said. This chain continues to add locations throughout the Chicago area.

Other players that are doing well? Dollar stores. Firsel said that this end of the retail market is especially strong today, in certain locations.

“They do serve a need. We will sell 15 to 20 of these a year,” Firsel said. “Dollar General and Family Dollar stores do very well in middle-class blue-collar retail markets and in under-retailed neighborhoods and rural markets. You can get everything in these stores, from a razor to a box of cereal. Family Dollar is on a tear. The dollar stores are doing very well, absolutely.”

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Guest post: Protecting yourself in a sublease or assignment

James Moorhead

James Moorhead

by James Moorhead, Moorhead Law Group

Tech companies have been growing and hiring at a very quick pace for several years now.  These companies have been growing at such a speed that they have become a significant percentage of the new office leases in markets such as downtown Chicago.

Tech firms now are taking a more cautious approach to growth and hiring.  With this slowdown in growth, the high demand for office space is similarly slowing.  Available sublease space has increased markedly as a result of the tech companies attempting to decrease their office footprints and expenses.

It might be too late for landlords and tenants to review and improve the sublease and assignment provisions in existing signed leases.  However, for brokers, investors, developers and tenants, a transitional moment in the market like the one we are now experiencing with the tech companies is a good reminder to make sure that sublease and assignment sections in leases are as tightly written as possible.

An assignment and sublease provision rarely has an immediate impact on the parties at the time the lease is signed.  Consequently, the parties have been known to review it quickly during the negotiation and to not think through this section as carefully as they should.  The assignment and sublease language will become very important if the tenant needs to quickly transition out of the space, so all parties to a lease should negotiate this section with an eye toward future concerns.

For owners, developers and landlord brokers

Landlords and tenants sign leases with the expectation that the tenant will do well at the location.  Property owners and their brokers will have done the necessary due diligence and security deposits and guarantees will have been put in place to protect the owner.  Excitement is high, and the desire generally is to get the lease signed and the business opened as soon as possible.  The reality, however, is that the statistics for businesses are daunting.  Roughly 80 percent of new businesses fail within the first two years.  The 2009 recession showed that even seasoned businesses can face severe challenges.

A landlord needs to protect itself in several important ways in a sublease or assignment situation.  The main concern for the owner is to maintain control of the property, including the tenant use, the intensity of the use, such as parking and HVAC demands, and any environmental impact.  For retail landlords, the quality and mix of the tenants also are critical considerations.

The owner’s lease negotiation checklist should include the following for the sublease and assignment section:

  1. All subleases and assignments should require the prior written consent of the landlord, with tenant requesting the consent and providing a copy of the transferring document at least 30 days – but ideally 60 days – in advance of the planned transfer date.
  2. Detailed information regarding the identity and financial status of the proposed assignee or subtenant should be provided with the tenant’s request for consent.
  3. Landlord should have the right to terminate the lease in lieu of the sublease or assignment.
  4. Tenant should remain liable under the lease and not be released.
  5. Landlord’s consent should be limited to the immediate transfer, and consent should remain required for any subsequent assignment or sublease.
  6. A change in voting control of the tenant should be deemed an assignment.
  7. Tenant should reimburse the landlord for landlord’s cost to review and consent to the assignment or sublease. The landlord likely will incur legal expenses for the transfer.  It also might incur engineering and architectural expenses.  The landlord also probably will spend internal administrative time to accommodate the transfer.  The cost for tenant to transfer the lease should not be the landlord’s obligation, so the reimbursement requirement is reasonable and standard.
  8. If the rent or consideration under the sublease or assignment is greater than the rent under the lease, then the landlord should have the right to the excess rent. The reason is that the landlord, as the owner of the property, should have the right to avail itself of the opportunity to earn the highest market rent possible.  The tenant should not be allowed to become a de facto landlord by leasing the space at one rent and easily subleasing it at a higher rent.

When reviewing a tenant’s request to sublease or assign the lease, the landlord should use certain criteria to evaluate the request.  If the prospective tenant’s character or business is not on par with the standards of the building or would violate the terms of the lease or another lease in the building, the landlord should have the right to deny the transfer.  If the new transferee would impose an unreasonable burden on the building’s facilities, including the parking, building systems, or elevators, landlord should be able to deny the transfer or demand some sort of accommodation from the transferee.  If the net worth and business experience of the transferee are not equal or better than the tenant, then the landlord should have the right to deny the transfer or receive additional security or guarantees from the transferee.

Additionally, if a tenant sells its company, this likely will be done by a stock or an asset sale.  In a stock sale, the buyer steps into the shoes of the existing tenant, and the lease remains intact because the tenant does not change, but most landlords deem this a ‘change of control’.  In an asset sale, the existing tenant will assign its lease along with the other assets to the purchasing entity.  The tenant will want to sell its company without any landlord right to approve the new tenant or new management, but the landlord still should insist on, at a minimum, advance notice and satisfaction of certain criteria, including a suitable net worth for the new tenant entity or management.

For tenants and tenant brokers

Tenants need to realistically view their future business.  A sublease and assignment provision should be written to accommodate the needs of a tenant when its business does not do as well as expected or if there is a shift in its business plan.  If a business fails or a site underperforms, a tenant may want to wind down operations and quickly unload the lease obligation.  The typical way to do this is to sublease the site to a subtenant.  Therefore, the sublease provision in the tenant’s lease should provide maximum flexibility in the event quick action becomes necessary.  Things to try to negotiate into the document include minimal restrictions on the type of acceptable subtenant, limited landlord approval rights with a ‘not to be unreasonably withheld, conditioned, or delayed’ standard, a capped or reasonable landlord review fee, and a short time period for any landlord review.  In conjunction with this, a tenant also should review the permitted use section of the lease to make sure it is as broad in scope as possible, so that the audience of prospective subtenants is not unnecessarily narrowed by being prohibited from operating at the site.

If the landlord demands that any excess rental or consideration being paid by the transferee that is above the rent in the current lease, the tenant usually can reduce that payment to only 50% of the excess rent, less the tenant’s expenses incurred from the transfer.  In addition, the tenant’s reimbursement of landlord’s expenses incurred from the transfer usually can be capped or otherwise limited.  One way to do this is to limit the reimbursement to landlord’s actual, reasonable out-of-pocket expenses, without internal administrative fees.  The tenant also can agree to use landlord’s preferred consent form, which could help persuade the landlord to limit its fee.

For asset or stock sales of tenants, the tenant should limit the landlord’s right to review and approve the lease transfer.  If the company stock sale triggers a ‘change of control’ provision in the lease, the tenant should try to exclude a company-wide stock sale from the landlord’s right to consent to the change of control.  If a tenant wants to have a public stock offering in the future, it should make sure that going public is permitted without landlord’s prior approval.  The reason for this protection during a company sale or a public stock issuance is that one landlord should not have the ability to hold up the much larger corporate matter affecting the entire company.  These protections will help streamline the entire process.

A lease is a multi-year commitment, and it is very important to think through the terms not only with respect to the current tenant but also for any future subtenants.  There are other considerations beyond the scope of this article, but focusing on issues as raised above will help when, and if, the sublease and assignment section is invoked.

James Moorhead is an attorney with Chicago’s Moorhead Law Group. You can reach him at 312-445-6262.

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Mid-America’s $10 million deal another sign of strength in St. Louis’ retail market

chippewa-center

by Dan Rafter

The retail market has been slowly, but steadily, improving in the St. Louis area. An example of that came earlier this month, when Mid-America Real Estate Corporation’s investment sales team closed a $10 million retail sale in the city.

Mid-America brokered the sale of the Chippewa Center in St. Louis on behalf of its seller, St. Louis-based Pace Properties, Inc. Jared Commercial, based in Springfield, Illinois, purchased the 147,920-square-foot center for $10.6 million.

The center is located in the highly-populated Shrewsbury neighborhood of St. Louis, a strong retail market. Tenants in the center include Shop ‘n Save, Value City Furniture and Dollar Tree. That dollar store is especially attractive, as dollar stores continue to thrive even as the nation’s economy improves.

Ben Wineman of Mid-America Real Estate, Inc., working with Scott Seyfried of Pace Properties, Inc., were the brokers in this transaction.

Of course, this transaction is far from the only large retail deal completed in the St. Louis market recently. Colliers International’s second-quarter St. Louis retail report highlights a market that, while still facing challenges, is definitely on the upswing.

According to Colliers, year-to-date absorption in the St. Louis retail market stood at 293,561 square feet at the end of the second quarter. This was largely thanks to activity by big-box retailers such as Walmart, Stein Mart and Bob’s Discount Furniture.

The vacancy rate in the market is also on the way down. Colliers reported that St. Louis’ retail vacancy rate stood at 6.6 percent at the end of the second quarter of this year compared to 7.3 percent at the end of the same quarter last year. Average rental rates have increased sligtly, too, to $12.17 a square foot at the end of the second quarter. At the end of the same quarter in 2015, this figure was $12 a square foot.

New retail construction in the area looks to be modest, with 435,922 square feet expected to be delivered to the marekt in 2016. About 364,000 square feet of these new deliveries will be single-tenant properties.

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Big deals make the difference in Indianapolis industrial market

indianapolis-industrial3

by Dan Rafter

Indianapolis has long benefited from a strong industrial market. This isn’t surprising: The city’s central location makes an ideal spot for companies shipping their products across the country.

The latest research from Colliers International, though, shows that the Indianapolis industrial market today is as strong as it’s ever been.

According to Colliers’ numbers, the vacancy rate in the area’s industrial market fell to 5.8 percent in the second quarter of this year. That’s down from 7.25 percent a year ago. Direct asking rents rose, too, by 1.8 percent during the same time.

Then there is absorption. The Indianapolis market absorbed more than 5.7 million square feet in the second quarter and 7.3 million square feet for the entire year so far. Colliers says that large industrial transactions made the difference, with seven transactions averaging 380,080 square feet of newly leased square footage were signed in the last three months.

That’s a much bigger average than in the first quarter of the year, when the Indianapolis industrial market saw 14 new modern bulk leases signed that averaged 170,728 square feet each, according to Colliers.

Don’t expect the trend of bigger industrial transactions to lessen. Colliers says that 30 companies averaging 350,000 square feet are shopping the Indianapolis market for 11.1 million square feet.

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Tourists providing boost to Louisville’s CRE sectors

river-ridge-louisville-photo

by Dan Rafter

David Hardy, managing director at the Louisville office of CBRE, agreed that the hottest market in Louisville today is industrial. Louisville has become a magnet for users seeing to centralize their distribution options, Hardy said.

“We are very much on the radar screen for a lot of the institutional owners,” Hardy said. “We have a good, healthy market for developers here.”

But while the industrial market is fueling the commercial real estate market, Louisville is also taking steps to attract more tourists to the area. That is providing a boost to the region’s restaurant and retailers, Hardy said.

In fact, Louisville is developing a reputation as a foodie town, Hardy said.

“The bourbon craze that has been going on is fueling a lot of tourism and interest in our city,” he said. “That has been a big plus. We also have a very fast-growing urban-housing mentality growing here. We are seeing some very modern, urban ground-up construction for some high-end multifamily projects.”

What brings tourists and new residents to Louisville? Hardy pointed to those new restaurants and retailers, of course. But he also said that the general strength of the city’s downtown core has had a positive impact.

Millennials, Hardy said, are increasingly living and visiting downtown Louisville. There’s a minor-league ballpark here; the University of Louisville’s basketball facility, which also hosts concerts and other events; there are trendy bars; and restaurants that are serving gourmet meals.

“We just have a great downtown,” Hardy said. “Everything we have there is helping to draw a lot of folks downtown who historically not have been people who ever frequented that part of the city.”

As more people head to downtown Louisville, developers are responding. In the Spring of 2018, the high-end Omni hotel will open in the city’s downtown. To Hardy, this project is a key one for the urban core of Louisville.

“That is a real stamp of approval that lures other developers to town,” Hardy said. “There is so much exciting stuff happening around the downtown. It is a lot more appealing environment for the younger workforce. It’s about reversing the brain-drain of our young people getting educated and heading off elsewhere for jobs. More of those efforts are paying off today. The restaurants and nightlife in and around downtown is playing a big role in making Louisville a more attractive city to these young workers.”

The softest commercial market in Louisville right now might be the downtown office sector. Hardy said that this market isn’t struggling, exactly, but it’s not been particularly vibrant in recent years, either. There just aren’t many tenants reserving large swaths of office space in the city’s downtown.

As for the future? Hardy likes what he sees in Louisville.

“I don’t see anything changing dramatically in the near future,” he said. “I think consumers are still active, so the retail market should remain strong. The office market is, overall, healthy. The industrial sector is certainly strong. We are seeing a lot of spec development in industrial. But that has not been an issue in the last several years. Everything that was built was absorbed, more or less. So demand seems solid in Louisville. Everyone is still busy and bullish.”

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The fast-casual restaurant boom continues across the Midwest

Erin Patton

Erin Patton

by Dan Rafter

Erin Patton has seen the same trend that retail experts across the Midwest have witnessed: Fast-casual restaurants are hot, and the demand for them in cities throughout the region is only increasing.

Patton, vice president of investments and senior director with the national retail group of Marcus & Millichap, has seen plenty of new fast-casual restaurants open their doors in Cleveland and Columbus, the markets that she most closely serves.

Patton says that fast-casual Mexican food, pizza places and burger spots seem to be especially strong in these Ohio markets.

“The fast-casual restaurants are truly one of the strongest drivers in the retail market here,” Patton said.

Columbus and Cleveland aren’t alone, of course.

Euromonitor reported that the fast-casual market has grown by 550 percent since 1999, with consumers spending an estimated $21 billion in this segment since 2014. A report released earlier in 2016 by Technomic identified such fast-casual chains as Blaze Pizza, MOD Pizza, Panera Bread, Freshii and Sweetgreen as players who are seeing strong sales growth today.

Patton said that fast-casual restaurants are performing well because consumers today want to spend less money than they would at a traditional sit-down restaurant but also eat healthier and tastier food than they would get at a chain such as McDonald’s.

“It has been a steady evolution,” Patton said. “Providing an experience is becoming very important for consumers. That is what they are going out of their house to do. They don’t want to just pop into a shop or pop into a restaurant. Instead, they want to have an experience. That is driving the push for more fast-casual choices here.”

The fast-casual market is bringing changes, too, to more traditional fast-food offerings. Burger restaurants, for instance, are getting a fast-casual makeover today, with speciality burger chains eating away at the business of traditional fast-food burger providers.

The same is happening at pizza chains, with Patton saying that make-your-own pizza concepts have steadily grown in popularity in both the Cleveland and Columbus markets.

“It’s all about having a new take on a traditional idea,” Patton said. “We are seeing these concepts usually appear in mixed-use developments. In these developments, it is about providing experience.”

Other trends

The rise in fast-casual dining isn’t the only trend that retail pros are seeing. Patton said that much of the expansion in the retail sector today is coming from necessity-based retailers. This includes retailers such as grocery stores, restaurants and gyms, ones that offer products or services that consumers can’t get as easily online.

“These are things that shoppers need on a regular basis, like food,” Patton said. “They are retailers that aren’t as impacted by the Internet as some others have been.”

Patton said that the retail market across the Midwest remains strong in general. And in Cleveland and Columbus in particular? The sector continues to see increased sales and leasing activity.

“Both of these areas have rebounded nicely after the recession,” Patton said. “The vacancy rates in retail in Cleveland and Columbus were quite high after the recession. Over the last three years, the vacancies that were going to fill up in this sector have already done so. If there is a long-standing retail vacancy at this point, there is likely a reason for it. Demand has filled the other vacancies over time.”

Even as the retail sector continues to strengthen, it does face challenges, most notably from the Internet.

Patton said that those retailers who are most successful today are discovering ways to not compete with online shopping but to adapt to it.

“It used to be, how can we beat the Internet?” Patton said. “Now, there is a broad-based acceptance from retailers that they have to work alongside the Internet. They have to co-exist with the online world. Many traditional retailers are embracing e-commerce. At the same time, Amazon announced that it is opening something like 100 small-shop spaces. There is a balance there. I think in most cases, brick-and-mortar and online can co-exist. This is the future. Convenience is what is most important to shoppers.”

Patton said that every retailer is meeting this challenge in a different way. She pointed to department store J.C. Penney. Today, this long-time retailer is heavily promoting and focusing on items such as furniture, household goods and makeup. These are items that consumers want to go out and shop for. They are less likely to purchase these items online.

“That’s a great example of how someone is embracing the current environment and working around it,” Patton said. “They are modifying what they sell. They are modifying their approach to meet the ways in which consumers shop today.”

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