A Carolinas Market Q and A: Retail Reinvented

Tuesday, June 20, 2017

Retail real estate experts Ted Hill and Tom Kolarczyk are co-leads of the dedicated retail investment sales team in HFF's Carolinas office, and they have one message they want the retail world to know: Despite the national headlines, retail in the Carolinas – specifically in the Charlotte, Raleigh and Charleston markets – is not going anywhere.

Mr. Hill and Mr. Kolarczyk, who have a combined 18 years of experience, discuss what is happening in Carolinas retail today, present their predictions for what is to come and reveal what they think is the biggest shake-up retail has seen in a long time.

What are some exciting things happening in the retail market in the Carolinas?

Ted Hill:  There are several exciting things and ideas, including grocery development with new entrants like Wegman's, Publix and Lidl. In Charlotte, the impact of public transportation is having a positive effect on retail development, and there is a sense of reinvention of retail as we're seeing an influx of more national regional brands like Shake Shack and Warby Parker, opening their first stores. Also, we have seen emergence of pop-up retailers allowing operators to test concepts before committing to costlier build-outs and long term leases.

Tom Kolarczyk:  We are also seeing a merging of retail, entertainment and restaurant, including the proliferation of the craft beer craze. Since 2007, more than 30 breweries have opened in Charlotte.

Why should investors pay attention to the Carolinas?

Ted Hill:  Each of the major cities are impressive when looking at the population growth figures, the job growth numbers, national rankings and praise these cities are garnering. Combed with the in-migration of millennials and members of Gen X, who value climate, affordability and ease of accessibility to amenities, it adds to an already remarkable picture. For retail specifically, Charlotte is under supplied. Despite the national headlines, retail in Charlotte, Raleigh and Charleston continues expanding.

What trends do you expect to dominate your market in the coming years?

Tom Kolarczyk:  I expect that we’ll see a lot of grocery growth. Additionally, experiential retail, places of gathering and lifestyle centers are gaining in popularity, as curating spaces that encourage consumers to spend time in a place becomes a focus for mall owners. The reasoning is that research has shown that, if you spend more time somewhere, you're more likely to spend money. Specialty grocers and specialty retail will become more prominent and high performing as landlords realize that, when it comes to regional/local business, it's more about productivity than credit. Other trends that we see are an increase in developments with ground-floor retail as mixed-use becomes more popular.

Ted Hill:  The Carolina markets continue to capture more and more institutional attention. The fundamentals keep getting stronger and outside capital keeps coming. I think the typical investor profile for players in the Carolinas will become more and more sophisticated.

Is retail evolving in the United States and in Your Market?

Ted Hill:  Evolution and retail are synonymous nowadays. Coming out of ICSC RECon, we heard a positive ring to this. Investors seem to view the dramatic changes in retail as a renaissance and not an implosion as the headlines would sometimes suggest. One thing that’s certain is there is no room for mediocrity among retailers. Regardless of the sector in retail, tenants have to be very good at what you do. Innovation is imperative for success. It’s a great time to be a consumer.

Tom Kolarczyk:  Given the rapid change, investors are putting more credence on productivity versus credit. Inline space with smaller units are thought to be less risky given the deeper pool of backfill opportunities. Being able to adapt to change is key to investors.

Ted Hill:  The gap between large-format and small-format grocery is widening. Lidl is rapidly expanding into the Carolinas with 31,000-square-foot stores beside Wegmans at 120,000 square feet. Nonetheless, more and more grocery is coming. Triangle Business Journal research shows the region has close to 30 new grocery store locations that have been confirmed or proposed to be built over the next three to five years. But, the biggest shake-up of the retail world we’ve seen in a long time happened last Friday when corporate uncertainty surrounding Whole Foods was put to rest with its impending sale later this year to Amazon. Following the announcement, we saw share price turbulence amongst all of the major grocers. Despite shareholder concerns, from an investor’s perspective, I think GGP CEO Sandeep Mathrani was spot on with his recent quote: “Good real estate wins.”

About Ted Hill

Ted Hill is an associate director in the Carolinas office of HFF with more than 11 years of experience in commercial real estate. His primary focus is retail commercial middle-market investment sales transactions throughout the Carolinas. During the course of his career, Mr. Hill has participated in more than $475 million in commercial real estate transactions.

Mr. Hill joined HFF in May 2017 from Charlotte-based investment and development firm Vision Ventures, where he was a vice president. He has also worked as a broker at Sperry Van Ness and Morgan-Carlisle. Mr. Hill is a certified commercial investment member and a member of the International Council of Shopping Centers and the Charlotte Regional Commercial Board of Realtors. He attended the University of North Carolina and studied abroad at Queensland University of Technology in Brisbane, Australia.

About Tom Kolarczyk

Tom Kolarczyk is an associate director in the Carolinas office of HFF with more than eight years of experience in commercial real estate. He focuses primarily on retail commercial middle-market investment sales transactions throughout the Carolinas, works closely with the national retail sales group and provides unique ownership and special servicing expertise to clients of the firm. During the course of his career, Mr. Kolarczyk has advised on, managed and invested in more than $887 million in commercial real estate transactions.

Mr. Kolarczyk joined HFF in September 2016 from Verris Capital, where he was responsible for opening the Charlotte office of the firm. Prior to that, he was an associate in the Washington, D.C. office of CW Capital, where he was responsible for the asset management of more than 70 retail assets throughout the United States. Mr. Kolarczyk began his career as an analyst in the Private Fund Group at Credit Suisse Securities in New York, New York.

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