COVER STORY, AUGUST 2007

KEEPING UP WITH THE TIMES
In a sector that changes constantly, what does it take to succeed in retail brokerage?
Coleman Wood

Commercial real estate can be seen as an ever-changing industry and the brokers that facilitate all of the moves must constantly keep up with the times, lest they be left behind. But one sector, retail brokerage, seems to change at an even faster pace than others.

Retail thrives on being able to deliver the goods to both consumers and the retailers that supply them. This means that retail brokers have to constantly be in the know of every aspect of their industry, from available property to the latest trends and retailers that are moving into or out of an area. The task is daunting, to say the least. Heartland Real Estate Business spoke to retail brokers across the Midwest about the changes in the brokerage business, how competition drives the industry, and what the future holds for the region’s retail sector.

Technology Drives Industry Changes

It is safe to say changes in technology, and the pace at which these changes occur, have been the biggest factor driving the evolution of the retail brokerage industry.

“Technology has certainly sped up what people expect from a broker, but slowing down a deal isn’t always bad. It gives people some time to think,” says Donna Hovey, vice president of retail, sales and leasing, for the Indianapolis office of CB Richard Ellis.

This accelerated pace has translated to most aspects of the industry, and brokers are expected to be able to keep up.

“You have to almost be like a chameleon as a broker, because the reps change so fast nowadays and there’s so much movement in our industry,” says David Devorkin, executive vice president in CB Richard Ellis’ Milwaukee office.

Competition Pushes Brokers

Retail clients have also come to expect that their broker will be accessible at all times. Seeing a broker with both a cell phone and a PDA has become commonplace. And with access to their office via phone and email no matter where they go, brokers never truly leave the office even when they’re out.

The Internet has made accessing information faster and easier than ever, which is a mixed bag. Brokers quickly know when deals are made and are constantly updated with the latest market figures. But the egalitarian nature of the Internet means that their clients are also privy to the same information, so retail brokers have to be able to go a step further to give clients what can’t be looked up with the simple click of a mouse.

“I believe that real estate has to be a passion,” Devorkin says. “If real estate is just a job for you, I don’t believe you’ll be competitive.”

The way to stay competitive is to know the industry, as well as the local market, inside and out. One way is to specialize in a particular submarket, whether it be a retail niche or a specific neighborhood. And while some argue that depth of knowledge is the way to go, others believe that having a broad base of general knowledge is a better advantage.

“I think that for a retail professional to be really good, they have to be a very good generalist at a lot of things,” Hovey says. “They have to understand the local market knowledge — whats going on, who’s moving where — as well as have that broad, bird’s eye view. And they have to know everything in between.”

Hovey adds that brokers have to know things as specific as signage requirements and how they vary from city to city, where rental rates are trending, and the property taxes in a given area.

Essentially, retail clients today want their broker to know everything about everything. Just knowing the information, though, will only get you so far. Many brokers agree that the ability to build relationships with your clients is the greatest asset a broker can have.

“I believe a broker should be an extension of his client — offering advice and opinions the broker believes to be in the best interest of the client based on experience and market knowledge,” says Ed Urbanek, senior broker associate with Des Moines, Iowa-based Iowa Realty Commercial/CORFAC International. He adds, “The broker should have the ability to get inside the head of both the landlord and tenant to ensure the best possible opportunity for success.”

It is important not only to foster good client relationships, but to maintain good relationships with other brokers in the market. That way, when it comes time to close a deal, all parties involved are a little more at ease with the inevitable negotiations.

“How much easier is it when everyone puts their weapons down, comes to the middle and says, ‘What do we need to do to satisfy your landlord and satisfy my client at the same time? Let’s move this forward,’” Hovey says. “That’s what makes certain brokers unique; that’s what creates relationships on both sides of the transaction every day.”

Residential Decline Slows Retail Growth

The slowdown in the residential market over the past couple of years has affected no other sector of commercial real estate more than retail. As Hovey puts it, “Retail is on the front line, being directly related to consumer preferences.”

And while there are certain segments of retail feeling little to no impact, others, such as home improvement, have been more negatively affected.

“It has absolutely hurt certain sectors of our population,” Devorkin says.  “But I don’t see anyone that has come to me and said that — because of the consumer price index, or because of consumer spending, or because of the slowdown in housing — they are going to stop development.” Devorkin adds that the slowdown has had a bigger impact on existing development than it has on an future projects.

This negative outlook has even seeped into the thriving big box retail segment, which is currently leading the way for retail expansion in many midwestern cities. Some retail professionals are saying that with the downturn in the market, big box needs to adjust to the changes.

“All the popular news reporting says that big boxes are rethinking their strategy,” says Hovey. “People don’t want to go into a 150,000-square-foot box and spend 35 minutes looking for something, and only come out with five things on their list.”

There is also a major question of how long big box can continue to grow when the retail sector as a whole is slowing down. Many, such as Doug Reichl, president of Chicago-based Tartan Realty Group, believe that the retail sector is close to the tipping point.

“Over the past 5 years, a lot of that big box development has been keeping up with the housing growth,” Reichl says. “I think we’ve all seen what’s happened with housing growth. With that slowing down — or stopping in some cases — I think the boxes in the not-too-distant future are not going to be able to keep up that expansion. I think we’re getting near the end of the recent, aggressive big-box expansion.”

But not all is negative in the Midwest retail market. Most real estate professionals believe that the sector is still going strong and that growth will continue, but they stop short of saying that the region’s retail market is thriving.

In the Milwaukee market, Devorkin sees the opportunities for growth continuing, but not at the rapid pace of recent years. In the next few years, he sees retailers relying less on the quantity of stores and more on the quality of stores. With the overall slowdown of the sector, calculated growth will be best for retailers.

Devorkin also does not see too much of a change for Milwaukee, in particular. Like many major midwestern cities, Milwaukee has always been in the middle of the pack as far as commercial real estate goes, meaning that when major market corrections hit the coasts, Milwaukee rarely feels it. That being said, trends that have already become the standard in other parts of the country are just gaining steam in Milwaukee. The city has just completed its first lifestyle center, Bayshore Town Center, which is a conversion of an existing regional mall.

As is always the case, different cities in the Midwest are at different points in the cycle of retail growth. As a smaller market, Des Moines faces challenges that confront many middle markets — convincing people that retail investment is viable in this particular city.

“Des Moines brokers still face the challenge of convincing national retailers that the urban population rebirth is for real,” Urbanek says. “While the daytime employment population is very strong, downtown retail activity is primarily relegated to service, convenience and entertainment.” He added that Des Moines is also seeing a slowdown in the retail market due to a saturation of product. Growth in Des Moines, like in many of the larger markets, is fueled by big box retailers and the infill development that always follows, so the pace for any future growth will be set by big box retailers. For now, it seems that everyone is taking a wait-and-see approach to the market.

In Chicago, construction costs have pressed rents to what appears to be the maximum retailers are willing to pay. A push back is occurring, with retailers walking away from deals because they are too expensive. Reichl believes that this will be one of the key things to reign in prices in Chicago in the future. 

Finally, Indianapolis is seeing constrained growth similar to Milwaukee, but with the volume of a much larger city. The smaller neighborhood retail centers are slowing down but big box is still going strong, even with some real estate professionals fearing that Indianapolis is nearing its own saturation point. However, Hovey is confident that the Indianapolis sector has always been able to show discipline, and growth will taper off before the market gets too bogged down with excess space.

Even with the downturn in the retail sector, most brokers see a bright future for the Midwest. It can be argued that as long as our population keeps growing, there will always be demand for retail space. For brokers, the goal will always be to provide a level of service that puts them in as much demand as the space they provide.


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