The Tampa Bay area can expect more restaurants and grocery chains in 2020, and a few more pop-up retail locations with tiny-sized stores. That’s what Noah Shaffer, senior director at Confidant Asset Management, sees in the coming months.
Shaffer, 24, along with a business partner, opened the firm in March. The firm provides advice to investors and landlords navigating the real estate world and also helps manage about 355,000 square feet of retail real estate worth nearly $50 million.
Shaffer spoke with the Tampa Bay Times this week about the intersection of retail and real estate. He also predicted which major chain would be the next to file for bankruptcy. Here are excerpts from the interview, edited for length and clarity.
How has retail real estate in the Tampa Bay area performed in 2019?
It has done well. We’re still seeing a lot of growth in the restaurant sector and other retailers are also doing okay, especially the ones with a good strategy and enough available capital to weather the inevitable bumps along the way.
You hear a lot of talk about the death of retail, but from where we sit, it’s in pretty good shape in (the Tampa Bay area). Some stores will close, but some of that is about poor management or big employee turnover or a lack of money in the bank.
Speaking of restaurants, are we getting overbuilt?
So far, restaurants are doing fine. We’ve seen a lot of new openings over the last year or so. Chicken restaurants — Chick-fil-A, PDQ, Pollo Tropical — are growing quickly. Not every concept works or survives, but on the whole, people are still going out to eat, which is reflected in solid numbers for the sector. It helps that the Tampa Bay area and Florida have growing populations, which support more restaurants.
Restaurants can take a hit when the economy slows down. Eating out is one of the first expenses people cut if money gets tight. They say, “That $100 I spent to take the family out for dinner could pay for groceries for a week." But that doesn’t appear to be happening at this time.
What about rents. Are retailers starting to feel the pinch?
Rents have been going up, for sure. Some retailers have been hit because they had favorable long-term leases that get rates low. When the leases expired, they got hit with a big increase because rents have gone up so much over the last 10 years. That forces some of them to move, or they go out of business.
In some of the popular locations in downtown Tampa and St. Petersburg, retail rents are pushing $50 a square foot a year (or $50,000 for a relatively small 1,000-square-foot space). Retailers have different ways of measuring how much rent they want to pay compared to overall sales. Many restaurants, as an example, want rents to be between 7 percent and 9 percent of sales. At $50 a square foot, it gets really hard for restaurants to navigate through even a small drop in sales. (See box below.)
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But restaurants keep popping up, and they don’t seem to be shying away from paying the big rent. They’re comfortable and confident they can make the numbers work.
Are you worried about how growing consumer debt could affect retailers and restaurants?
It’s starting to get worrisome, especially if the trend continues over the next six months. What often happens is people spend a lot and then pay it off at tax time when they get a tax return. If the payoff rate decreases, then I’ll start to get more concerned.
The other component is corporate debt, which has grown in recent years. The appetite for companies to take on more debt is diminishing. It’s another thing to watch in 2020.
Several major retailers — Kmart, Sears, Toys ‘R’ Us — have filed for bankruptcy in the past few years. Which big name will be next?
I’d predict Pier 1 Imports. It has been struggling to reinvent itself for a while now with not very good results. A year ago, the company had a decent balance sheet, not a lot of debt, and strong cash reserves. Now it has largely depleted its cash reserves and increased debt. The company recently put a CEO in place (Robert Riesbeck) who previously worked at HHGregg, which went through bankruptcy. The signs don’t look good.
What trends do you see continuing in 2020?
We’ll see more large grocery stores in smaller footprints. Instead of 50,000 square feet, they are opening more at 30,000 square feet (about the size of the Publix stores in downtown St. Petersburg.) We’ll also see grocers like Lucky’s Market and Sprouts Farmers Market open more locations.
Another thing to watch: more pop-up retail spaces, but only in particular places. We’ve seen these in our downtowns and in the Edge District in St. Petersburg. A landlord takes a building and carves it up into small spaces — sometimes just 200 square feet. They can charge much higher rents per square foot, but the retailers can afford it because the footprint is so small. It’s management intensive — the landlords have more tenants to deal with and more turnover — but they also increase their income by charging the higher rents. It really only works in certain locations, so don’t expect to see the concept in every strip mall.
By the numbers
Shaffer breaks down what rising rents in parts of downtown Tampa and St. Petersburg mean for small restaurants:
Fifty dollars a square foot means a 1,000-square-foot restaurant will pay $50,000 in rent per year. That would require about $600,000 to $700,000 in annual sales. If the restaurant’s average ticket price per customer is $13, it would have to serve roughly 54,000 customers a year (or about 148 per day) to make a comfortable margin on that location.
A good example of a small restaurant that many people know is Smoothie King. They are typically 1,500 square feet, including the kitchen area. Smoothie King franchisees in the top 25 percent of all locations make on average $730,278 and may have a drive-thru to help sales.
A small 1,000-square-foot restaurant in downtown Tampa would have 500 square feet less than a typical Smoothie King to accommodate customers and no drive-thru. But if its rent was close to $50 a square foot, it would have to make as much as the top 25 percent of Smoothie King operators. A very challenging task for most mom-and-pop operators.
Noah Shaffer, 24, senior director at Confidant Asset Management in Tampa
Education: Bachelor’s degree in accounting from the University of South Florida. Working toward an MBA from USF.