David Denton says even though e-commerce is affecting the retail market, he’s expecting another good year for the sector from a real estate development perspective. Denton, vice president of real estate brokerage at DAR Development in Grand Rapids, was recently named to the Midwest Real Estate News Hall of Fame and previously served as president of the Commercial Alliance of Realtors. A 20-year industry veteran who specializes in retail and restaurant projects in Michigan, northern Indiana and Ohio, Denton spoke with MiBiz about the particular challenges and opportunities that exist in the local retail real estate market.
Given the retail shift to the e-commerce model, how do you assess the state of the retail real estate market?
The news would paint a really bad picture for retail. In reality, I don’t think it’s that bad yet. Yes, major malls are going through a transformation, primarily because people are not shopping at department stores like they used to, but they are still going to the mall to shop at the other stores. Retail sales are still very strong. A lot of the national people have adapted with a brick-and-mortar and an online channel to hit all customers and allow customers to buy online or return at the store.
How have the changes in retail affected the real estate industry?
From a site selection standpoint, it’s gotten harder because there’s been — really in the last four to five years — less new construction. There are fewer new sites being constructed for being able to plug and play into. It’s made site selection a lot harder for retailers, like for a Starbucks or a Tropical Smoothie Cafe that have certain requirements about where they need to be. From a traffic count standpoint and demographic standpoint, it used to be people would put up an outlot in front of a Target and expect to get tenants. Now that doesn’t happen unless they know they have a tenant. It makes us team up with preferred developers to make sure we can get those completed.
What challenges are you expecting this year?
I have a really good pipeline this year, and had one of my best last year. There was a good mix of business between retail site selection, a lot of sales. I represented a large hotel group who we did a lot of land purchases with. Vacancies are down, so space is still hard to find, and rental prices are going up, so a lot of negotiation has to be done to get the right deals for people. But my pipeline is good. It’s a good mix of business. I think retail is alive.
When do you think we will see major shifts in retail?
I think we’re going to continue to see change in the way people do business, whether shopping online or having groceries delivered to your house. That shift is going to continue. What that does is create opportunities for new players to enter the market that maybe have that expertise and can do it better than someone who’s just starting to get into it. The existing retailers, restaurants and grocery stores, they’re just going to get better. We all still need to wear clothes, we all still need to eat. How we acquire those goods and services may change a little bit, but I don’t foresee in the next 10 to 15 years that there’s going to be any vast changes other than what we’ve seen in the last 10 years.
What opportunities do you see to breathe new life into vacant retail centers?
For instance, I have represented Starbucks in Michigan, except Southeast Michigan, for 10 years or more. A recent transaction with them in Grand Rapids is 465 Fuller, a former Burger King that had been vacant for 5-10 years. Starbucks has been looking for a drive-thru location on Michigan Street near the hospital for several years. New drive-thrus are very difficult to get approved along this corridor. We decided to look at Fuller. I worked with the owner of the Burger King, who is a client of mine, and Starbucks to come up with a site plan that would be acceptable to the city as well as Starbucks. This took a period of about 12 months. Construction is now underway and we will soon have a new Starbucks drive-thru on this site, along with an additional 2,400 square feet of tenant space that we hope will be filled soon as well.
How do major retail bankruptcies affect what you do?
Typically, bankruptcy isn’t good for anyone — retailer, landlord or the shopping consumer. The only one that wins sometimes is the broker backfilling the space, especially in a tight market. Although we have seen many retailer bankruptcies, their spaces have quickly been absorbed as good retail space is hard to come by right now. Vacancy rates are actually very low as little new inventory has come on the market. So, although stores going out of business sounds bad, it does create opportunities for new retailers/users to enter the market.
Is there anything that’s keeping you up at night?
One thing that keeps me up at night is it’s hard to find new people that want to get in the business and learn the business and move forward with me. Everybody is having a hard time finding people right now. My next step is to develop a small team to assist me, and then take over that business. In this industry, it’s tough because it’s 100-percent commission, and most people are either not in the position where they can do that or they’re not comfortable with it. It’s a great industry and a really fun business. Every day the job is a little bit different.
Interview conducted and condensed by Sydney Smith.