CONNECT MEDIA: Experience Economy Drives 2018 Lease Deals

By Dennis Kaiser

As published on Connect Media on December 18, 2018

The retail sector has experienced more than its share of challenges and shifts over the past few years. As we round out the year, Connect Media sat down with Coreland Companies’ Matt Hammond to find out what drove leasing trends in 2018, and what he sees ahead in 2019. Check out his responses in our latest 3 CRE Q&A.

Q: What did 2018 look like in terms of Southern California lease transactions?
A: While the past few years saw an explosion of restaurant concepts, 2018 was much more about service models and service providers. From the acceleration of click-and-collect concepts, to local businesses expanding their platform of services, tenants of all types have spent the year re-shaping their business.

Southern California retail leasing efforts were driven by anything you can’t do on the internet, from salons and spas to pet grooming and supplies. Based on our initial review of 2018 lease deals, nearly 50 percent of our Southern California transactions were with service providers. The balance was an even split between restaurants and health & fitness.

Q: Where does that leave traditional retail deals?
A: Traditional retail, such as clothing and home goods, made up just 7% of our transactions. However, the lines have blurred between retail and service because no retailer can afford to just be in the business of selling products.

Look around this holiday season and you see custom experiences being offered everywhere. The skate shop that is also a skate park, the surf shop that sells little in store and focuses on custom orders; or the home store selling interior design services in addition to goods.

Q: Have we seen the peak of Health and Fitness deals in the market?
A: I don’t think we’ve seen the peak because specialization is fueling growth. Similar to grocery store specialization, fitness concepts have found great opportunities focusing on niche audiences. Today, you can choose from traditional (LA and 24-Hour Fitness), discount (Planet, Chuze and Crunch Fitness) or specialty (UFC, Orangetheory, F45, Fit Body Bootcamp, SoulCycle, etc.), all offering a different product at different price points.

Owners and tenants today are more welcoming of fitness co-tenants. They have seen the value and better understand the use. Just based on our experience on recent deals, owners have reasonably been able to obtain approvals from anchor co-tenants, something that would not have happened a decade ago. This allows fitness tenants to target better real estate deals and encourages new concepts.