Vestar Says Retail Leasing is Best it's Been in 20 Years
Vestar has been around since 1988 and some of the fundamentals have never been in a better place than what they are right now.
Jeff Axtell, executive vice president of development of the retail-focused real estate firm, told GlobeSt. that the firm has seen the "best leasing" in the past few years compared with the 20 years before that.
COVID MADE VESTAR STRONGER
When Covid first hit the U.S. in March 2020 — some investors thought it would be the beginning of the end for offline retail, as demand for e-commerce skyrocketed. Well, they might have been half right as major brands like Bed Bath & Beyond JCPenny were forced to file for bankruptcy. However, the right type of offline retail still works, whether that's those focused on grocery or malls combining the shopping experience with entertainment.
The positive note that came out of the pandemic for Vestar was it exposed the struggling retailers and forced them to close their doors, while the stronger ones survived and thrived.
"The retailers that were still around were set up for a longer-term run of good times," Axtell said.
"Consequently, a lot of the vacant space that was created during that time has been leased."
A big change in the past year is Vestar is seeing fewer junior box spaces, meaning properties that range from 15,000 to 30,000 square feet.
"All of your soft good [retailers] like Nordstrom Rack, Marshalls, Home Goods or Ross, are telling Wall Street they have to look beyond existing centers to new development for them to grow 100 stores a year," said Axtell.
DENVER AMONG LEADERS IN DEMAND
Vestar focuses on the Western markets including Colorado, Utah, Arizona, Washington State, Oregon, California, and Nevada. Perhaps its strongest market currently is Denver. There is "a lot of leasing activity, [and] a lot of growth going on there," according to Axtell.
Some other well-performing regions for the company include Phoenix, Salt Lake City, Las Vegas, and Southern California.
Meanwhile, Axtell noted there might be some "softening" in Washington State and the Northern California markets.
LOWER RATES LEAD TO BUYING OPPORTUNITIES
With the Fed continuing to cut interest rates, Axtell thinks it will lead to a better offensive opportunity in 2025 to "go out and buy existing centers to grow our portfolio." Vestar plans to look for opportunities in West Coast states from Utah to Nevada.
Particularly, Vestar will target suburban open-air shopping cents anchored by major retail brands like Home Depot, Walmart, Costco, or Target.
"These larger, 250,000 square foot to one million square foot shopping centers that combine those different types of uses, would be the main focus," Axtell explained, adding that it won't purchase enclosed malls.
Additionally, Axtell said the firm won't shy away from more grocery-anchored neighborhood centers either because they satisfy "daily and weekly" needs for consumers, creating a "stable investment."
Another part of the focus for the Arizona-based firm is ground-up development. In fact, Vestar recently announced that its major 500,000-square-foot shopping center project in Buckeye broke the ground, called Verrado Marketplace. The site's total investment is $275 million.
For ground-up developments, Axtell said it is "heavily focused" on Phoeinix currently, and plans to continue that trend for the next half-decade.
And the last part of Vestar's business plans is third-party property management. Axtell broke down the process by stating "A lot of our partners want us to lease third-party stuff that we don't have ownership interest in, but we will manage it for them and lease it for them and operate those centers as if they were our own."
Source: GlobeSt/ALM