Smart mall owners? They rely on technology to make their centers strong

by Dan Rafter

When analysts list the reasons why shopping malls are struggling, they inevitably point to technology. This makes sense: Tech and online shopping have certainly reshaped the shopping habits of the U.S. consumer. For many, the rise of ecommerce has made the sprawling indoor shopping mall a relic.

But Brian Zrimsek, chief product officer of Solon, Ohio-based MRI Software, says that technology can be a lifeline for malls.

With technology, mall owners can not only access mountains of data on the shopping habits of their customers, they can analyze this data to make changes in the ways they operate their malls, changes that can boost the amount of time and money shoppers spend at their centers.

“I can remember spending plenty of time at Radio Shack, CompUSA, Circuit City, Sears and Linens ‘N Things. Now those have either gone by the wayside or are struggling,” Zrimsek said. “My kids don’t hang out at the mall. Technology has changed all this. Kids instead of hanging out at the malls are hunkering down with their tech at home. That has changed the nature of foot traffic.”

Most malls, though, haven’t changed to meet the evolving shopping habits of their customers, Zrimsek said. Go into most malls across the country and you’ll see the same mix: two to three anchor stores, rows of smaller retailers and a food court.

Malls can’t offer the same product and expect today’s shoppers to spend their entire day wandering their floors, Zrimsek said. Instead, they need to study their costumers’ shopping habits and make the changes that will allow them to adapt along with their shoppers.

Data is key

MRI Software provides its commercial real estate costumers with software that they can use to analyze the number of shoppers that come to their retail centers and malls each day, where they spend most of their time, which retail tenants are performing well and which ones are struggling.

Armed with this data, mall owners can make changes designed to boost their monthly revenue.

Say a mall schedules a tree-lighting ceremony to start the holiday shopping season. A big crowd comes to see Santa. That’s great, right?

Not necessarily.

“If all people do is see the tree-lighting and Santa and then leave, that’s not much help to your mall,” Zrimsek said. “Are they spending dollars elsewhere? That’s the key.”

Mall owners can use software to analyze the sales of their tenants, and can then determine which ones are underperforming. Zrimsek said that mall owners can compare the sales of the six casual restaurants in their food courts year-over-year, per-square-foot or on a daily basis to see which ones are generating the most income, and which are generating the least.

They might look at retail categories across several of the retail centers they own, to see if an apparel store is struggling in one indoor mall but perhaps thriving in a nearby strip center. Owners can then use that information to determine if the apparel store might simply perform better in an open-air strip center than it will in an enclosed shopping mall.

Mall owners can even use the data they gain from software to refute untrue claims from their retail tenants.

Zrimsek points a letter that a mall operator recently received from one of its fast-casual restaurant tenants. The tenant claimed that the mall’s recent renovations were dragging down its sales. The mall operate studied the sales data from its management software to discover that the sales at every other fast-casual restaurant in the same center were actually on an upward trend.

The mall owner than looked at the sales numbers from the complaining fast-casual restaurant in other centers. The owner discovered that the restaurant’s sales were also falling at these other centers, centers that were not in the middle of renovation projects.

“That owner was able to write back to the tenant and say, ‘Dear Tenant, it’s not us, it’s you,” Zrimsek said.

Mall owners can use data to determine if they need to change the layout of their centers or rely on special events to draw customers to under-traveled portions of their malls.

Zrimsek cites the example of a West Coast mall that was thriving. The only problem? One corridor of the mall was not attracting the same amount of traffic. This corridor was not a natural path for shoppers, and the stores lining it were not generating the same amount of sales.

“When you put sales-per-square-foot on the site plan, that one area lit up like a bright-red beacon,” Zrimsek said. “It wasn’t just one retailer that was struggling, it was all the retailers in that corridor. As a landlord, you can use that information to figure out ways to drive traffic there. Do you need to put in a retailer with a bigger name, more brand cache’? Do you need to change the configuration of the mall to get people down that corridor? Do you need to hold special events in that section of the mall?”

Zrimsek said that this mall operator was still weighing options for the under-traveled corridor. The owner was contemplating possible physical structural changes and bringing in a different mix of merchants for the corridor.

Making better choices

Mall owners can use management software and the data it generates to make better tenanting decisions, Zrimsek said.

Say an owner wants to bring a nail salon to its retail center. Instead of just bringing in a random salon, owners can analyze the performance of the salons in their other retail centers. They can determine which salons average the most sales per-square-foot and which ones attract the greatest number of customers.

Owners can then bring those stronger salons to their other retail centers.

Mall owners might automatically think that a trendy retailer such as grocer Whole Foods makes sense for their malls or strip centers. And maybe that Whole Foods will bring in plenty of shoppers.

But if those shoppers simply buy their groceries and leave the center, that Whole Foods might not be as powerful a tenant as owners think, Zrimsek said. A better choice might be a top retailer such as Nordstrom.

Shoppers might visit the Nordstrom and then spend money at the retailers surrounding it, something that might not happen with the Whole Foods, Zrimsek said.

“Some landlords can get complacent,” Zrimsek said. “They expect their retail centers to always work the same way. They don’t understand which categories are performing better than others. They continue to run their centers as they always have. They can’t do that today.”

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Baby boomers have high expectations for senior housing. Developers aim to deliver

Travanse at Grayslake includes the modern amenities that today’s seniors want.

by Sara Freund

Amenities that create a more thoughtful community are a trend in nearly every commercial sector—and senior housing is no exception. Matt Booma, executive vice president of CA Senior Living, knows that in this market going beyond the essentials is key.

“We gear everything toward wellness—paint colors for the aging eyes, gyms focused on balance and agility, food tailored toward the senior palette,” Booma said.

He went on to list theaters, libraries, spas, outdoor bistros, happy hours, game rooms and rooms for entertaining relatives as amenities that are now trending in seniors housing.

CA Ventures launched its senior housing division in 2012. The company entered the sector with more than a decade of experience in student housing and apartment development experience. In some ways, that’s been an advantage.

“Senior housing communities haven’t really invested in technology. CA brings a big advantage to the sector as our student housing division has to constantly keep up with tech because it’s a huge concern for students. We see a great opportunity in senior housing to implement the latest technology,” Booma said.

One major difference between senior housing and other sectors is that it’s a hugely operational real estate class, Booma said. Incorporating technology could alleviate some of the stress associated with that issue. Booma’s keeping a close eye on wearables and tech that can help staff provide better care, quickly locate a resident in need of help or streamline the management process.

A new wave of seniors in need of housing? 

For developers in senior housing, the wave of 76.5 million baby boomers heading toward retirement is tricky to anticipate. But the industry has time to figure it out; the average age of a senior housing resident is in the low 80s, and right now the oldest baby boomers are 70 years old. CBRE estimates that supply will outpace demand through 2024, with a period where the industry should be wary of overbuilding. In 2025, the market will shift, and there could be an onset of a significant supply shortage as baby boomers reach their 80th birthdays, according to a national report by CBRE released in June.

“A lot of where this industry is headed is dictated by the baby boomers,” said Booma. “This generation hasn’t settled for anything. They’ve strived for the best. We need to accommodate that.”

Seniors coming into facilities today are very different from the previous generation in that they live longer, are more active, have lower rates of disability, are more educated and have more money, according to AEW Capital Management research.

The design in new facilities reflects the generational change. Now it’s important to have large, common areas with high ceilings and modern finishes, and lots of programs focused on socializing and wellness. What the industry is seeing now in design is vastly different than it was a decade or two ago. Before, many facilities had low ceilings, small windows and kitchenettes. Much of the industry felt institutional because the design trends came out of skilled nursing. But today, residences feel more like home.

Last year, memory care facilities took center stage, but demand did not keep pace with the new supply, CBRE reported. The pace of inventory growth last year reached its highest level since 2009, and even with a record net absorption rate, it was not enough to even out the market. After seeing declines last year, the assisted living and memory care sectors saw occupancy rates decrease further to 89.7 percent and 88.1 percent in the first quarter of this year. Independent living had the highest occupancy level in the quarter at 92.2 percent.

Previously, developers were reluctant to build independent living facilities, but with occupancy now at pre-recession levels, they are eager to delivery this product type. Independent facilities have recorded the greatest growth in construction activity, about 21.1 percent, CBRE said.

Meanwhile construction in memory care and continuing care retirement communities decreased by 21 percent and 31.2 percent respectively. Developers, operators and construction companies are ready to move ahead with construction, but lender underwriting standards are reining them in. Lenders are becoming far stricter, while loan-to-cost ratios for the development financing are at 50 percent to 60 percent, with a large emphasis put on the operator’s experience and platform capabilities.

For now, Booma said, he’s focused on increasing the penetration rate.

“If we can raise that number from 6.3 percent then we’ll see growth in the industry,” he said.

Part of that growth depends on competition, and currently the sector is fragmented with no one firm or operator that truly dominates the market.

“When we get more competitors, we’ll see improvement in the product that’s being delivered,” Booma said. “Baby boomers won’t move into an obsolete or dated product. People want something new. So there is a huge opportunity now in redevelopment and new construction.”

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JLL: Office vacancies continue to fall in Columbus market

by Dan Rafter

Vacancy rates are down and asking rents are up in the Columbus office market. But that doesn’t mean that Ohio’s capital city doesn’t face challenges in this sector.

Those are the takeaways from the latest research report from JLL.

JLL’s first-quarter office report said that the Columbus market’s office vacancy rate has fallen to 11.8 percent. That’s down from 12.2 percent at the end of 2016. At the same time, average asking rents stood at $19.46 a square foot, up a tick from the end of 2016.

But JLL reports that the Columbus market does have to deal with the aging office space in its city and suburbs. Developers here are expected to deliver at least 1.7 million square feet of new Class-A office space in the next 10 years. This is making existing, older office space less attractive in the Columbus area, JLL said.

JLL said that the Columbus suburb of Dublin is a good example. This community has 1.8 million square feet of aging Class-B office space. Dublin plans to add 373,000 square feet of new-construction Class-A office space.

What will happen with Dublin’s older office inventory? JLL says that the city is focusing on zoning reform as a way to increase the amount of parking available to these older buildings. The city is also providing economic incentives to encourage landlords to invest in energy efficiency programs for these older office buildings.

The goal is to boost the older stock, perhaps attracting tenants who can’t quite afford the newer, Class-A supply.

Despite the challenge posed by older office buildings, the Columbus office market should enjoy a strong end to 2017, JLL said. The Columbus market had already absorbed 197,971 square feet of office space by the end of the first quarter. Much of this came in the form of the leasing of 165,000 square feet at Parkwood II in Dublin.

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Indianapolis, Kansas City and Columbus make Cushman & Wakefield’s list of top tech cities

Columbus is one of the top Midwest tech cities, according to a new report.

Washington D.C. and cities dotting the Silicon Valley may have grabbed the first spots on Cushman & Wakefield’s inaugural Tech Cities 1.0 U.S. report, but Midwest cities also had a good showing on the company’s list of the top 25 tech centers in the United States.

The Cushman & Wakefield list highlights those cities with the greatest combinations of tech talent, capital and growth opportunity. San Jose, California, was named the top tech city this year, with San Francisco, Washington D.C., Boston/Cambridge and the Raleigh/Durham/Chapel hill area of North Carolina rounding out the top five.

Three Midwest cities made what might be considered surprising appearances on the list.

Columbus ranked 19th in the Cushman & Wakefield report. Paul Krimm, managing principal of Cushman & Wakefield’s Columbus office, said that while this might surprise outsiders, those who live and work in this university community know that Columbus has long embraced tech start-ups and entrepreneurs.

“Columbus has become one of the fastest-growing innovation and technology hubs in the nation because of a large, educated workforce, superior research capabilities and a strong corporate foundation,” Krimm said.

The future looks good for Columbus, too. The city won the U.S. Department of Transportation’s Smart City Challenge prize of $50 million to use toward the next wavce of transportation innovations.

Kansas City had a good showing, too, ranking 22nd on Cushman & Wakefield’s list.

“This accomplishment is the result of more than a decade of work from different parts of the community,” said Michael Mayer, managing principal of Cusman & Wakefield’s Kansas City office.

Indianapolis earned the 23rd spot in the report. This is especially impressive considering that Indianapolis has long been thought of as an industrial powerhouse. The ranking on the Cushman & Wakefield report shows, though, that there is more to Indianapolis than manufacturing, warehouses and distribution centers.

“Indianapolis has developed into a burgeoning technology hub because of the business climate that has been developed here,” said Chris Yeakey, managing principal of Cushman & Wakefield’s Indianapolis office. “We are no longer a tech secret.”

Yeakey said that Indianapolis benefits from a low cost of living, a deep pool of skileld labor and a strong roster of companies working in software development.

“Indianapolis is quickly making its mark,” Yeakey said.

Posted in Columbus real estate, Indiana commercial real estate, Indianapolis commercial real estate, Kansas City commercial real estate, Missouri commercial real estate, Ohio commercial real estate | Tagged , , , , , , | Leave a comment

Cyber risks and commercial real estate

Ed Wlodarczyk

by Ed Wlodarczyk, president and chief executive officer
Prairie Stone Investors

Imagine a Fortune 500 executive suite’s relief as it completes a relocation of its national corporate headquarters. Such a move generally evokes ideas of future savings through the latest workplace efficiencies and technologies. Sounds like a great beginning, doesn’t it?

While commercial real estate assets do provide the space and comfort for a business to run its operations and make significant revenue, they also house many private records and data — including confidential financial information that, if penetrated or compromised, could cause significant corporate and personal loss.

Cyber attacks, which are prevalent in our society today and which will remain so in the future, pose a significant risk to the occupiers and owners of commercial real estate. It is paramount that occupiers, owners, managers and practitioners develop a cyber security plan that insures the safety and complete privacy of data and records housed on servers throughout the asset. All operating building systems, HVAC and smart utilities are likewise vulnerable to compromise, and accordingly require connectivity with the management control networks to minimize risk.

It is highly recommended that prior to the time staff and employees move into a new location, the occupier hires an independent third party that specializes in cyber security to perform a vulnerability or penetration test/study of the occupiers’ systems. Likewise, owners and managers can establish protocols and add security products that will help secure the tenants’ space before occupancy.

While many real estate firms recommend outsourcing data storage, it should be noted that any utilization of a third party vendor will require the same accountabilities that the occupier has deemed relevant to its security protocol.

Just as we all buy health and property insurance policies to protect us from the many personal risks we face, it is imperative that we consider cyber security risks, too, and prioritize insuring the safety and integrity of data we hold in commercial real estate assets. This study will point out the deviancies in current systems and recommend fixes and procedural enhancements that, when implemented and maintained on a regular basis, will protect a firm’s systems from external attacks.

Ed Wlodarczyk, is a commercial real estate executive and consultant. He the president and chief executive officer of Prairie Stone Investors, a founding team member of Bespoke Real Estate Advisors.

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Colliers report debunks the myth of brick-and-mortar retail’s death

Not all retailers are struggling today.

by Dan Rafter

It’s easy when reading of the latest round of store closures to think that online shopping has already killed brick-and-mortar retailers. But a new retail spotlight from Colliers International says that physical stores aren’t quite dead yet.

The Colliers report instead argues that U.S. retail as a whole is actually performing well, despite the high-profile struggle of retailers such as Sears, Macy’s and Kmart.

This doesn’t mean that online shopping isn’t making a big impact on retailers. It just means that a growing number of retailers are learning how to incorporate both online and brick-and-mortar transactions into their business plans.

The Colliers report says that for this firstime online retail is forecast to account for more than $1 out of every $10 that consumers spend in 2017. But the report also says that even five years from now physical stores will still account for the vast majority of retail spending.

Consumers already have learned the benefits of shopping both from their computers and smart phones and at physical stores. Colliers says that consumers today shop seamlessly, using a combination of physical stores and online channels for everything from groceries to electronics to clothing. This means that physical stores are actually driving significantly more than the $3.2 trillion of spending that went directly through them in 2016, Colliers says.

And those retailers who are struggling to attract shoppers to their brick-and-mortar stores? The Colliers report says that those shoppers who have reduced their visits to physical stores say they’ve done so because these retail spaces are dull, uninspiring, hard to shop and rarely have new items on the shelves. They also offer poor customer service.

Retailers, then, who want to attract more shoppers to their physical stores have a blueprint to follow: Provide an experience at their locations that consumers can’t get online. Stock their shelves with new items at value prices. And provide expert-level customer service.

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Some bet I-57 is on track to get even more industrial growth

I-57 between W Steger Road and W Monee Manhattan Road.

by Sara Freund

Developers aren’t worried about industrial slowing down—even with 17.9 million square feet of new construction in the sector—and they expect demand for this property type to continue.

But there are some factors that might cause uncertainty. Construction costs are expected to rise 4.3 percent, interest rates are increasing and the cost for those who want to invest in industrial real estate will grow higher, according to a report from Transwestern.

Activity in the industrial market today is driven by e-commerce, while logistics tenants and developers delivered 4.7 million square feet of new space, mostly tailored toward that industry, according to Transwestern. Leaders such as Amazon at 6521 W. Monee Manhattan Rd. and Georgia-Pacific at 23534 S. Central Ave. have already made big investments in the area. Proposed and planned developments located along I-57 between West Steger Road and West Manhattan Monee Road are becoming much more common, too.

The I-57 corridor hasn’t seen as much growth as, for example the O’Hare market, but that doesn’t mean it won’t. The Village of Frankfort, a south suburb in Will County, is betting that a wave of activity will come. The village is considering, after property owners indicated interest, annexing parcels of unincorporated Will County where industrial activity is increasing, according to Rob Piscia, a spokesman for Frankfort.

This area—bounded by Stunkel Road, Dralle Road, Ridgeland Avenue and Harlem Avenue—is slated as a future home for several planned and proposed developments. Frankfort officials anticipate a large amount of future growth, and the move could diversify the community’s tax base, Piscia said.

Alex Genova, an experienced industrial broker with Transwestern in the south suburban market, sees Frankfort as being ready to take advantage of a key opportunity to attract new facilities and bring in more jobs.

“From a property tax standpoint it’s a good decision, residential then doesn’t have to come up with as much money,” Genova said if Frankfort were to approve the annexation. “These large industrial facilities, they actually do help communities.”

Several brokers in the south suburbs are noticing tightness in the Chicago market and are preparing for more growth in the area. There are several acres of land ready for expansion, which is attractive to companies that grow quickly, Genova said. The area is already popular for industrial users because of its proximity to major expressways and space for new product. Currently the market is seeing mostly build-to-suit projects, but Genova thinks that will change in the next few years.

One reason I-57 hasn’t “exploded” with growth yet is the slow progress on several infrastructure projects, Genova said. If two major projects, the Illiana Corridor and the South Suburban airport, got off the ground that would spur even more industrial growth. However, the proposed Illiana highway, which would run through Will County, was tied up in federal courts after a problematic environmental impact report and put on hold. As for the South Suburban airport, Genova isn’t holding his breath for that delivery either.

Some good news, though, is the new CSX Intermodal facility in Crete, which could act as a catalyst for development when the facility is complete in 2020. Although the project is still the preliminary stage, the plan would be to build a rail yard that would facilitate intermodal transfers between train and trucks, according to CSX’s website. The facility will have a total of 10 tracks and seven zero-emission electric cranes, giving it the capacity to handle a half-million container lifts each year and space for 2,600 shipping containers.

Jeff Bennett, founder and president of McColly Bennett Commercial, thinks now is Kankakee’s time to take advantage of the industrial wave. He has worked in the Kankakee market since the ‘80s, and has seen the full scope of the market. There are obvious advantages to the area, and Bennett think key qualities of Kankakee aren’t completely realized yet by those in the industry.

“One of the things we find in our community is that we don’t get the same peaks or bottoms. We are a much steadier market,” Bennett said. “Right now, we’re primed and ready to see acquisitions and expansions. When we start getting spec on the market in the coming year, there’s no doubt companies will want to come here.”

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