Must-Know Commercial Real Estate Terms: Take Two!

In the past, we have shared with you some of the most important and frequently used terminology to be aware of when leasing your first commercial space. Today, we want to expand that knowledge and give you a new list of must-know terms that will help you plan, negotiate, and execute your commercial real estate deal with success.

Here are some of the most common terms and classifications used in commercial real estate leasing:

1. (FF&E) Furniture, Fixtures, and Equipment

FF&E is the Furniture, Fixtures, and Equipment necessary for a tenant to operate their business inside a landlord’s premises. For office properties, this generally consists of desks, computers, copiers, etc. In restaurant spaces, it typically includes tables and chairs, coolers, vent hoods, kitchen equipment, and the like.

Tenants are usually allowed to remove their furniture and equipment upon vacating the space as long as they vacate in good standing with the landlord—which means having met all of their lease obligations. However, fixtures that are permanently attached to the premises are a different matter, as they are now considered part of the property.

For example, the vent hood and cooler are generally considered to be permanently attached fixtures in a restaurant space because removing them can cause damage to the property; therefore, these need to be left inside the premises when the tenant vacates.

A broker can help you determine which items will fall into the FF&E category.

 2. Building Classification

Searching for the perfect space can be a daunting task. But letting your broker know what you are looking for ahead of time will help speed up the process. Building class is a great way to get the conversation going. But how do you determine which one is right for you?

  • Class A – If you’re looking for the highest-quality building with well-designed, above-average materials and many amenities, then Class A is for you. Many prestigious tenants seek out this class of property because they are typically in the best location and well maintained.
  • Class B – Though they aren’t outfitted with as many amenities as Class A spaces, Class B property offers very useful space and a functional layout. Class B buildings are, more often than not, older than Class A, but they are still very well maintained.
  • Class C – Class C is usually the oldest space in the classification system and has fewer amenities available to tenants than Class A or B. Lessees can expect average to below-average maintenance and management, and average mechanical, electrical and ventilation systems. Cost for these spaces are usually on the lower end.

Still have questions about which building class is for you? Contact our brokers at info@crunkletonassociates.com.

3. Maximum and Minimum Contiguous

Maximum Contiguous space is the largest divisible area allowed in a property. For example, multiple spaces or suites on the same floor or connecting floors in the same building may be combined to meet the tenant’s needs. The amount of space that can be combined is the maximum contiguous square footage.

Minimum Contiguous is, as it sounds, the smallest divisible area allowed in a property.

 4. First-generation vs. Second-generation Space

This is a fairly easy one to define. Second-generation space, also known as “relet” space, is existing space that was previously occupied by a tenant.

First-generation space means that the space has never been occupied.

Knowing the generation status of your space can help you determine whether or not you need to consider build-out and create a more accurate timeline for when you can occupy the space.

Be sure to ask your broker if a first or second-generation space will be the best fit for your future plans.

5. Work Letter

An important part of commercial real estate leases, a work letter outlines the responsibilities of the landlord and tenant when it comes to improvements that are necessary to prepare the leased space for occupancy.

The letter may include items like a list of space improvements, timelines for the projects, and contractor-related information. The work letter is often part of the final lease document.

Have questions about searching for or leasing a space? We are here to help you reach your goals. Contact us at info@crunkletonassociates.com!

SplitLine
Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

haley_squareHALEY CLEMONS
MARKETING COORDINATOR
CRUNKLETON COMMERCIAL REAL ESTATE GROUP
HALEY@CRUNKLETONASSOCIATES.COM

Advertisements

The Trend Report: Emerging 2018 Insights

Each year, we take a look at the Emerging Trends in Real Estate report that’s released by PWC and the Urban Land Institute to see what changes to expect in the commercial real estate industry. The report for 2018 is out, and Crunkleton has a breakdown of the major highlights when it comes to office and retail.

Although these trends are presenting themselves nationwide, it’s important to note that many of the items found in Emerging Trends generally take a longer time to reach smaller markets—on average 5-7 years. This must be considered when examining Huntsville.

So what trends should you be watching in the years to come? Here are just a few:

A Focus On “Generation Z”

It’s true that while Millennials are still on everyone’s mind, the younger Generation Z is beginning to influence the future of office space, retail, and housing.

Generation Z falls between 1995-2001 and totals around 65 million to 75 million people within the United States. As the newest group to enter the workforce, businesses and building owners are carefully looking at the major transformations they could bring to the workplace.

According to Emerging Trends, this generation is likely to show the same initial preferences for urban-based work environments that Millennials did. However, there are some key differences that should be noted.

  • Surveys suggest that potential for growth and stability are the two main factors Generation Z desires when searching for a job.
  • The design of workspaces will need to adapt to accommodate the collaborative space-loving Millennials and the structure-seeking Generation Z. Emerging Trends reports that the new generation is trending toward more structured/personal office space.

While Generation Z is the next hot topic, one can’t forget that the workplace is multigenerational. Baby Boomers are staying in the workforce much longer than expected, and this greatly affects the preferences you’ll see in the modern work environment.

When it comes to retail, Generation Z is seeking more omni-channel experiences. Essentially, they want to be reached on a number of channels that make purchasing convenient and engaging.

Omni-Channel Retail Becoming The Norm

If you aren’t familiar with the concept of “omni-channel retail” here’s a quick breakdown of how it works. Retailers are reaching potential and current customers on several channels at once—online, mobile, email, apps, social media, and physical stores. It makes it increasingly easy to purchase an item on whatever channel suits the consumer.

Emerging Trends states, “even the largest online retailers are now acquiring brick-and-mortar locations and moving away from pure-play Internet distribution.” This allows retailers to reach customers from every angle and make their brand an experience.

There’s an increasing demand for the “eat, play, live” model that makes a shopping experience double as a social exchange. This means developers are called to become increasingly creative with how they implement new shopping destinations in the market.

An Evolving Office Landscape

Office job growth is strong and expanding 2.2 percent on average compared to 1.6 percent total job growth. Employers are competing for talent and are creating attractive, flexible office spaces to help draw in new employees.

Emerging Trends reports a demand for close-in suburb offices that provide central business district amenities. Millennials particularly are looking for the best of both worlds. Offices in suburban areas with reliable public transportation, walkability, high-quality real estate, and live/work amenities are important. Examples of these “new suburb” areas include Brooklyn in New York City and Belleview in Seattle.

The lines between working and playing are continually blurring, and many offices are attracting tenants with “transformational office amenities” like large public gathering spaces, food options, high-end fitness facilities, and rooftop spaces—just to name a few. This is further expanding to include daycare facilities, rest areas, and game rooms.

However, office owners are constantly working to develop spaces that not only offer open-space environments, but also plenty of flexibility for private spaces that reduce noise and increase focus.

And finally, technology is affecting the office real estate landscape. Spaces are evolving to become more energy efficient with conveniences like motion-activated lights and the most advanced audio/video setups that the market has to offer.

Deconstructing The Department Store Model

It has been decades in the making, but the deconstruction of the full-line department store business model is in its final phase. In the words of Emerging Trends, “department stores are closing operations at an increasing pace, threatening all but the best malls with extinction.” The report states that department store sales once totaled in the hundred billions of dollars annually, but only comes to around $70 billion today.

This means malls have to adapt in order to attract consumers—by adding more unique retailers and local goods. And most large department stores have decreased their product offerings over time and now only provide three primary categories of goods: apparel, housewares, and cosmetics/fragrances.

Other factors are affecting the retail real estate industry, as well. Some of them include changing consumer demographics and preferences. Baby Boomers are still the largest single U.S. consumer group but are entering a new stage of life where they will consume less, shed assets, and spend higher amounts on entertainment, dining out, and travel. Millennials are appearing to follow suit by spending less on apparel and housewares and more on entertainment and dining out. This is all the more reason to create retail centers that add a “social dimension.”

Old-fashioned human interaction cannot be computer-generated. And the outlook looks great for retailers who are able to harness the power of community and offer more than an exchange of cash for goods.

All information, opinions, and predictions presented in this article come from the Emerging Trends in Real Estate Report 2018.

 Interested in reading the full report? CLICK HERE to download the document.

“Now in its 39th year, Emerging Trends in Real Estate is one of the oldest, most highly regarded annual industry outlook for the real estate and land use industry. The market outlooks included in each edition are based on an extensive survey, multiple interviews, and individual market focus groups. Readers’ interest in all markets continues to increase, so the 2018 edition provides a regionally based look at all 78 markets included in this year’s survey. Throughout the report, we’ll explore a variety of trends we’re seeing in the industry, as well as analyze the prospects for 78 metropolitan markets for the coming year.”

SplitLine
Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

haley_squareHALEY CLEMONS
MARKETING COORDINATOR
CRUNKLETON COMMERCIAL REAL ESTATE GROUP
HALEY@CRUNKLETONASSOCIATES.COM

Trend Report For 2018: A Pivotal Time for Brick and Mortar Retail

Possibly not since the first enclosed mall opened in 1956 in Edina, Minnesota, has brick and mortar retail experienced such a pivotal point in its history. Most would attribute the changing retail environment to the effects of e-commerce and the Goliath that is Amazon; however, we believe there are more powerful factors at work.

In-store brick and mortar retail sales accounted for more than 89% of total retail sales in 2016, and early indications seem to point to 2017 being the best holiday shopping season in 4 years. So, if people are still shopping at brick and mortar stores, why do we hear the term “retail apocalypse” every time we turn on CNBC or pick up a Wall Street Journal?

The End Of The Department Store Era—Not Brick And Mortar

What we are seeing is not the demise of brick and mortar retail, but more the end of the department store era. Department-store-anchored malls that sold everything from apparel and electronics to furniture and home appliances dominated the 60’s, 70’s, and 80’s. But specialized big-box retailers have steadily eroded the department store model over the last three decades.

Eventually, we were left with malls anchored by department stores that focused on just a few categories centered on apparel. Does this mean that we will soon see the end of department stores and enclosed malls? Yes and no.

We will continue to see enclosed malls struggle to compete with convenience/grocery-anchored centers, experience-based shopping destinations, open-air lifestyle centers like Bridge Street Town Centre, and local specialty destinations such as The Garage at Clinton Row. Many malls will be able to adapt and survive with the addition of entertainment venues, hotels, and even office space. Others will simply disappear from the landscape to be replaced by a more modern retail and entertainment experience as we are seeing take place at the site of the old Madison Square Mall.

As far as the old department store is concerned, we are already seeing the same type of adaption into a more mixed offering of services and experiences. Many department stores are starting to reduce the size of the sales floor to make room for cafés, salons, pop-up shops, and even fitness concepts. Not all department stores will survive, but the ones that do will be more focused on the high-end specialty categories and customer experience. Instead of existing for exclusively for retail sales, they will provide a total experience and numerous services in one convenient location.

What Does The Future Look Like?

What can consumers expect the retail environment to look like in the future? Currently, the trend is what is called omni-channel retail. This is a combination of brick and mortar stores with online and mobile sales. As evidenced by Amazon’s acquisition of Whole Foods, e-commerce retailers are getting into the physical storefront game. It appears they understand the value of physical storefronts and their impact on the bottom-line. Sure, online shopping is convenient, but does it result in sales?

Research has shown that over 40% of items purchased online are returned. Furthermore, consumers make a purchase at a rate of 20% of the time when they walk into an actual store. That rate drops to 3% when visiting a website. The successful retailer of the future will be able to combine online, mobile/social media, and physical locations to create a positive experience for the customer.

One issue that is flying under the radar is the new tax reform bill and its impact on retailers. A reduction in the corporate tax rate could have a significant influence on the ability of brick and mortar retailers to compete with e-commerce retailers. With the reduction of the corporate tax rate, the savings experienced by the retailers can be used for an investment into omni-channel/mobile platforms, upgrading stores, or simply lowering prices to compete with e-commerce.

A Theme Of Adaptation

In conclusion, we continue to believe that the future is bright for both retailers and landlords. Once again, the theme continues to be adaptation. Traditional retailers are building their online presence and e-commerce retailers are getting into the bricks and mortar game. This environment creates opportunities for landlords that have the vision to meet the changing demands of consumers and the needs of the omni-channel retailer. It’s certainly an interesting time in retail, but one that can bring exciting changes to the benefit of everyone.

 Have questions about the changing retail market? Wondering how you can adapt in 2018? You can contact Zac at zac@crunkletonassociates.com or by calling 256-536-8809.

SplitLine
Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management, and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.

Zac Buckley
VP of Leasing
Crunkleton Commercial Real Estate Group
ZAC@CRUNKLETONASSOCIATES.COM

Trend Report: Brick-and-Mortar Retail Is Not Dead

Over the past couple decades e-commerce has been taking over retail…. or has it?

One of the largest online retailers in the world, Amazon, shocked the world when they opened a bookstore in Seattle’s University Village last November. This single act has brought national attention to a sway back toward brick-and-mortar stores, as well as an “omni-channel” approach to retail (the seamless integration of online stores to physical stores).

Screen Shot 2016-07-26 at 11.03.22 AM

Many other companies like Warby Parker and ThinkGeek have also decided to make the move to adding concrete locations, allowing customers to closely interact with the brand and their products.

But what is causing this trend?

I did a little research and have compiled this list of the top 5 reasons that brick-and-mortar retail is not only alive and well, but superior to e-commerce:

People Prefer to Shop in Person

The simple fact is that the majority of customers still prefer to shop in-store. They want the “experience” of shopping and the ability to touch or try on products.

Customers Spend More Time In-Store

Research shows that customers spend almost one and a half times longer in a physical location browsing products than they do when perusing an online website.

Increased Sales

Browsing in a brick-and-mortar location results in one in five customers actually making a purchase. Whereas according to “Instore vs. Online” by icsc.org, online shopping is closer to 1 in 20 customers making a purchase after browsing a website’s products! Not only does shopping in an actual store result in more completed purchases, on average people also tended to spend a lot more in person than they do online.

More Cost Effective for Brand Awareness

It’s true that e-commerce has grown exponentially, but with it, its competition has grown exponentially as well. That’s because every company is trying to reach customers through the same Google search results. This has caused online advertising and keyword purchase prices to skyrocket. According to the Guardian, “Macy’s and Nordstrom’s spent an estimated $6.4 million and $4 million respectively, in paid search listings for the top 1,000 apparel-related keywords in the first quarter of 2015.” This has led many online-based companies to start using brick-and-mortar locations to expand their customer base and awareness. These companies have shown that physical stores can increase sales, brand awareness, and online traffic all at a fraction of the cost of Google keyword purchases.

In-Store Growth Rates Equal $144 Billion

In this handy infographic published by icsc.org,  they explain some of the confusion around e-commerce’s seemingly huge growth. E-commerce’s current growth rate of 17%  is calculated from only a tiny portion of total retail purchases, about 6%. And this 17% comes to about $38 billion in growth for e-commerce. In contrast, in-store retail only has a 3.5% growth rate, however they account for 94% of total retail purchases yielding about $144 billion in growth! This explains why people may think e-commerce is growing more quickly than in-store retail, but in fact, brick-and-mortar retail is still the king.

© ICSC In-Store Vs. Online

© ICSC In-Store Vs. Online

SplitLine
Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

404220_10150473102152791_1516819070_n
LINDSEY POPPE
MARKETING ASSISTANT
CRUNKLETON & ASSOCIATES
INFO@CRUNKLETONASSOCIATES.COM