What's Happening
In Retail Real Estate

Looking at the trends in commercial real estate -- both in terms of tenants and development -- reveals a healthy market, one that continues to support a wide range of retail.

And "range" may be the key word. The simultaneous rise in luxury and discount retailers is a trend noted by a number of brokers and commercial real estate experts.

Their price points may be wildly different, but both the high-end and discount retail categories are doing particularly well, notes James Rosenfield, national director, retail services at Cushman & Wakefield.

As an example of the luxury market's continued expansion, he points to the recent opening of Wynn Las Vegas, a hotel symbolically transforming Las Vegas from a tourist playground to an affluent destination spot.

The hotel offers 75,000 square feet of retail space; tenants include Ferrari, Maserati and Oscar de la Renta.

"The success of luxury retailing is really quite incredible," said Rosenfield. "When you couple that with the success of discount retailers, what you see is a very healthy, robust economy on both ends of the spectrum."

Also helping push the luxury market are continued purchases by the "aspiration group," notes ICSC President Michael Kercheval. This group aspires to a more affluent lifestyle, as seen in their purchases of $200 denim jeans or $30,000 BMWs.

"What we've observed in the industry is that there is a lot more aspiration going on," said Kercheval. "There is the super luxury group, which continues to spend, and then this group of people in the middle range who are buying more luxury goods."

Meanwhile, a parallel boon in the big box community value centers continues, notes Anthony Buono, managing director in national retail division, CB Richard Ellis.

Stores like Target, The Home Depot and Wal-Mart continue to open these types of centers across the country, while also targeting urban areas. Target, for example, opened 26 stores across the country this past March, while Wal-Mart opened 31 supercenter stores in April.

The largest numbers of these big box openings are occurring in the areas with high population growth -- places like Phoenix, Sacramento, Florida, Southern California and the suburbs outside of Washington, D.C., according to Buono.

While construction costs and land prices across the country continue to rise, said Buono, investors are still attracted to the big box centers' high returns. A big box center, if done well, can typically give a return investment of 11 percent. But in many ways, the luxury and discount categories are overlapping in terms of customer, according to Buono. Stores like Kohl's and Target have succeeded by stocking items that appeal to all incomes.

"The Neiman Marcus customer is also a Kohl's customer," he said. "And they are also interested in a T.J. Maxx. The revelation is that these stores have a format that works. They are doing a good job of delivering quality merchandise, and a variety of merchandise."

James Rosenfield at Cushman & Wakefield believes the simultaneous rise in luxury and discount categories is a cultural phenomenon, one that is more reflective of what is happening economically across the country.

But ICSC's Kercheval argues that the trend can be largely attributed to the age demographic of the country and its large population of baby boomers.

Baby boomers, he believes, would rather go to discount stores for bulk commodities, but will spend more money buying a specialty item -- like smoked salmon from an upscale grocer. "As consumers get older, they are more conscious of where they will spend their money, and where they will splurge," he said.

The most interesting group to watch may be the middle group of retail -- Sears and Mervyn's, which sell more moderately priced goods -- and many in the retail industry expect these stores to reposition themselves going forward.

"It's the stores in the middle that are trying to find their niche," said Kercheval. "Should Sears open standalone stores, or should it go more upmarket? Something is obviously going to happen in that middle area and it will affect retailing in the future."

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