novembernewsletter2024

Does Location Matter Anymore?

There’s a common saying: “real estate is all about location, location, location.”

Recently, I worked on leasing new construction retail in an ideal location: an affluent community in a densely-populated area with high foot traffic. “This should be easy,” I thought. After all, who wouldn’t want to be here?

After an initial door knocking and cold calling campaign, most tenants weren’t interested. Shocker! So who was? 66.7% of tenants who requested more information were already operating within a 5-minute drive. These tenants weren’t looking to expand into new markets; they just wanted a better space in the same area. This pattern holds true across all KVREA listings throughout 2024 — 3 out of 4 leases we brokered were with businesses already nearby. The driving leasing decision during tenant interviews? They thought our building was nicer than their current one.

Now, am I saying tenants never expand into new markets? Of course not — they absolutely do. But as a landlord or broker, the data suggests that it’s easier to convince tenants to move within their market than expand to a new one.

Why does this happen?

There’s a shortage of quality space. According to Moody’s Analytics, in the greater Milwaukee area, only 4% of retail properties were built after 2010 (Class A), and just 18% after 2000 (Class B). Tenants in the 72% (Class C/D) are competing for the top 18% of inventory.

So what does this mean for investing? Here are the key takeaways:

1.) It’s better to own the Class A property in a B neighborhood than a Class B property in an A neighborhood. Why? Because tenants in the B, C, and D buildings will target your property for relocation.

2.) There’s still a strong “flight to quality” in leasing. Every lease we signed with a nearby tenant this year was driven by the superior quality of our building. When you acquire a property, your goal should be to make it the crown jewel of the area.

It’s certainly interesting to see a real estate mantra turned on its head, but personal anecdotes (and some data) don’t lie.

Until Next Time,

Mark Kvetkovskiy

Commercial Real Estate Advisor

KVREA | Compass Commercial

Sale listings: JLL listed a property leased through June 2029 at a 10.67% advertised cap rate – one of the highest we’ve ever seen for Milwaukee retail!

Sales Investment: Retail in Pewaukee, WI sold at $73.74/SF ($2,170,000), implying a capitalization rate of 9.45% based on the listing brokerage’s offering memorandum

Leases: Skechers signed a 10,369 SF lease at the Mayfair Collection – reported by CoStar

Loans: (Contact us for a referral) Mortgage rates spiked higher – the cheapest rate we saw quoted in the last week of October was 5.76%.

Adding curbside pickup spots to a shopping center offers several benefits. It provides convenience for customers, supports tenants by accommodating flexible shopping options, and meets the growing demand for online ordering with quick, easy in-person collection. This can increase traffic, boost tenant sales, and enhance the center’s overall appeal, helping to retain tenants and stand out in a competitive market. According to an October 2021 Ipsos survey, 78% of shoppers have used curbside pickup since the start of the pandemic.