Retail leasing collaborations bear little fruit

Retail brokers are keeping their friends close — and some are keeping their enemies closer, collaborating with competitors for shared slices of a shrinking tenant base.

Whether these partnerships forged by hard times, like X Team
International, a retail real estate brokerage alliance made up of
small and mid-sized boutique firms, represented in South Florida
partner by the Fort Lauderdale-based Rotella Group, will succeed in preserving business remains unclear. But the fact these arrangements exist reflects the profound shift in an industry that’s still getting squeezed.

Even in the competitive retail leasing industry, it’s now seen as a smart move to work with competitors rather than throwing them under the bus to land deals, because those opportunities are fewer and further between.

The X Team venture, for example, leverages Rotella and
other brokerages’ strength to retain retail clients in a roster that
includes Home Depot, Dollar Tree and Quiznos.

“By forming an alliance of retail brokerages, we know what’s happening from one end of the country to another,” said Bill Rotella, president of the Rotella Group. “If I have relationships in Florida that can help X Team members on the West Coast, I make an introduction. This helps us compete against the larger brokerages.”

If collaboration is the keyword, it’s because competition hasn’t
abated, and the market has certainly worsened. In Broward County, for example, the vacancy rate rose 190 basis points in 2009 on negative net absorption of 1.7 million square feet, while asking and effective rents dipped for the second consecutive year, according to Marcus & Millichap’s 2010 annual outlook report. The firm predicts additional vacancy increases and rent declines in 2010, despite signs of an economic stabilization.

Good intentions aside, can collaboration combat the challenges of a retail market like Broward County’s? Barry Wolfe, vice president of investments in Marcus & Millichap’s Fort Lauderdale office, doesn’t think so.

“The challenge on the leasing side is not to find available space for
a tenant — it’s finding a tenant,” Wolfe said. “There is plenty of
available space. I would think if a leasing broker found a tenant
looking for space, they wouldn’t refer it out. They’d strive to find
them a good space — and finding space is easy.”

Indeed, in addition to the current vacancies Broward County will see another 800,000 square feet of retail space delivered in 2010,
including the 600,000-square-foot Village at Gulfstream Park. Can
cross-country collaboration help fill the space?

The returns on the collaboration investment remain difficult to
quantify. Rotella, for example, would not put a number on how much business the X Team was driving his way or offer an example of a recent deal he landed based on a referral from the alliance.

But some forms of collaboration may offer hope in a down market.

Wolfe is seeing landlords collaborate with tenants to minimize damage to their revenue streams in a depressed economy. Savvy landlords aren’t merely offering generous concessions, he said. Many now require tenants to spend some of the concession money to better their chances in the market.

“Landlords want to see tenants use some of that concession money on advertising or marketing or some other initiative to better position their business,” Wolfe said. “It’s about helping the tenant improve the bottom line. That goes much further than a temporary rent credit.”