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Why the demand for retail pad sites is booming

Demand for retail pad sites is at an all-time high, driven primarily by fast-food and quick-service restaurants, which are seeking more drive-thru locations and tenants moving from small-shop inline space to larger centers. Looking for.

Pad sites and outparcels anchored by grocery operators and national big-box chains that are deemed essential — Kroger, Home Depot, Publix, Target and Walmart — continue to receive the most interest. But limited retail development has forced a shortage of new pad sites and created a frenzy for those that are available, even ones that tenants have overlooked or overlooked in the past.

“Pad sites that were oddly shaped or too small or located in markets that weren’t on the radar of retailers—even those sites are in high demand now, so I guess you Call them ‘late bloomers,'” says Joe Schlosser, senior vice president of asset management for Philips Edison & Company (PECO), a Cincinnati-based REIT that includes about 290 shopping centers, with approximately 30.4 million US dollars. Includes square feet. feet of place.

Drive-thru sites hungry

Pre-Covid, demand for the pad site was already high due to the growth of existing and new coffee shops including Dutch Bros, Black Rifle Coffee and Black Rock Coffee, as well as fast-food and QSR brands such as Chick-fil-A. was expanded. Pick up the cans

According to Walter Wahlfeld, executive vice president of JLL Retail, during the pandemic, restaurants with drive-throughs have performed better because they were able to continue serving customers even when their dining rooms were closed.

“Demand is increasing throughout COVID as many retailers now believe this drive-thru requirement will become the new standard, especially with the growth of online ordering and pickup,” says Wahlfeldt .

Chipotle and McAlister’s Deli, for example, are now adding sites with pick-up windows so customers don’t have to step out of their cars to receive their to-go orders. Meanwhile, Panera is increasingly looking for sites that allow drive-thru.

Restaurants and other retailers wishing to have buildings with drive-throughs need larger pad sites (assuming they don’t reduce the size of their dining rooms or do away with them altogether). Additionally, a single drive-thru is not sufficient for many fast-food and QSR operators.

In fact, many popular national brands are looking for “stack” drive-thru, according to Ryan Ashe, project director of WeStar, a Phoenix-based retailer and homeowner with a 30-million-square-foot portfolio. ft throughout the western United States.

For example, in Texas, the new What-A-Burgers has three drive-thru lanes. Similarly, Chick-fil-A has begun adding a second drive-thru lane at locations with ample space.

Redevelopment and redevelopment of dark buildings

Although merchant developers remain the major players in PAD site development and leasing, knowledgeable shopping center investors can unlock value in their existing projects by remodeling dark single-tenant buildings or demolishing obsolete single-tenant buildings and developing new ones. Looking for ways. category.

Schlosser estimates that 85 percent of today’s pad site opportunities are redevelopment plays. He points to Alameda Crossing, which is 141,702-square-feet. Center in Avondale, Ariz. Anchored by Joe Sprouts and Joann Fabric & Craft Stores and adjacent to a freestanding kohl’s.

PECO purchased the vacant building located on an outparlment opposite Spouts, formerly occupied by a bankrupt beauty supply retailer. The REIT renovated an 8,000-sq. Pacific Dental and is actively leasing the property and remaining space in a multi-tenant building occupied by a regional taco restaurant.

Some landlords are initiating talks with existing anchor tenants to gain control of unused acreage or to see if they are liable to convert additional parking areas into pad sites.

“One of the biggest opportunities to develop PAD sites will be to unlock real estate controlled by strong corporate occupiers, who have additional acreage, either uncultivated land or unused parking, to develop PAD,” says Sharin. . “The more developers figure out ways to infiltrate with these corporate occupiers, the more we’ll see this happen.”

The rise of multi-tenant pad sites

In the not-too-distant past, developers and owners would first strike a deal with an investment-grade tenant who expressed interest in the pad site. But rising construction costs, along with changing retailer needs and supply-demand imbalances, are changing the way developers and owners view PAD sites.

According to Sharin, property owners really need to think about maximizing NOI for pad site projects. While higher rental rates are one way to achieve this, they are not the only way, or even the smartest way. Instead, owners are designing and developing multi-tenant buildings on pad sites that previously would have had only one retailer.

“The biggest trend we’ve seen on pad sites is the increase in single-tenant versus multi-tenant pad use,” says Sharin, noting that combining multiple tenants into a single pad site allows owners to manage their own business. Doubling or tripling is allowed. No.

At PECO’s Alameda Crossing, for example, the REIT built a new 4,800-sq.ft. Built a single pad on site and leased it to a regional donut retailer, a local salon and a chiropractor.

Historically, multi-tenant pads or parcels were rare, mainly because many retail tenants required more space and did not have space for many users. But the increasing availability and accuracy of consumer data from proptech companies has given retailers a better understanding of their space needs.

Across the retail spectrum, retailers are adjusting their footprints, rolling out many prototype stores that are much smaller than their traditional ones. And now that single tenants need less space, it makes sense for both tenants and developers/owners to look for multi-tenant pad sites.

Consider Walgreens, Chipotle, and PF Chang’s—all three of these retailers are testing pared-out concepts, with Walgreens focusing on its most profitable part of the business—prescriptions—and both Chipotle and PF Chang’s away from the dining room. and are emphasizing on delivery and takeout. , which halves the space requirements, if not more.

Today, many retail tenants actually prefer multi-tenant pad sites. These types of properties fit well in the space between large shade-anchored strip centers and in-line small shop space at grocery-anchor centers.

“Multi-tenant pad sites bring a greater diversity of customers than single-use,” notes Sharin. “It’s a win for everyone.”

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