Dark clouds loom on the horizon for owners of commercial real estate in Richmond, but four local women think they may have struck on an idea that could provide temporary shelter from the storm for property owners.
The women, all dealers in high-end antiques, plan their second foray into itinerant retail space rental Oct. 7-10, with a four-day opening of their Perfect Nest antique store at 5801 Patterson Ave. The idea, to lease vacant retail for a temporary or seasonal sale, isn't new. But it holds a lot of potential for property owners because of one glaring market-inspired reason.
“Our real hitch is that there's so much retail space that's vacant,” says Susan Sprinkle, who along with Sara Garza of Sheppard Street Antiques, Patti Loughridge and Annette Bashensky, founded Perfect Nest antiques for its first show in the old Richmond Piano space in Carytown last April. “And you think about it from the other side, you've got to breathe some life into these places if they've been vacant for a while.”
Even as many economic indicators begin to look up, some market doomsayers are calling the commercial real estate market as the next sky to fall, so there could be a lot more of that space around Richmond in coming months.
Paralleling the housing construction boom that went bust with such disastrous consequences, the national commercial market experienced a similar construction boom that also involved lots of speculative loans for construction on retail and office space without assurance of future tenants.
Now many of those loans — as much as $2 trillion worth, according to Real Capital Analytics, a New York-based real estate analysis firm — are upside down. Without tenants, the pressure on these property owners could have disastrous effects.
Against that backdrop, the initial idea for Perfect Nest came from Garza, whose idea was a take-away from her work in estate sales with Loughridge.
“If you open up a house for only three days, it's amazing the purchases they make if they know they can't come back in three weeks,” Garza says. The side benefit worth noting is that the space itself gets high traffic — and you never know if a customer interested in a mahogany chest of drawers might also take an interest in the storefront too. “It gives [property owners] the prospect of a new tenant,” she says. “I like to think one of these properties will rent for the owner in the next three months.”
Though Perfect Nest is somewhat unique for Richmond in its itinerant use of small retail spaces, it's an idea that's also evolved independently elsewhere.
“I ran into a woman who lives in New York and she says to me, ‘Whoa, you know they’re doing this in New York City, right?'” Garza says. “So many times there the [permanent] retail shops are just stagnant and just aren't moving.”
In Richmond, things aren't quite so gloomy for retail, but how many rays of sunshine might break through depends on the forecaster.
Mark Douglas, senior vice president at Thalhimer Commercial Real Estate, looks to past storms, citing the recession of the early 1990s. In 1992, he says, an 18 percent vacancy for commercial space took eight years to recover from. And in 2009, Douglas asks, “Who's going to be the big user that's going to come and save us?”
Take Carytown, where the Perfect Nest group held its first itinerant sale and where vacancies have hit nearly 20 percent. Around Richmond, office space is far worse off than retail, with 22 percent vacancies, and the Innsbrook office park could see as much as 30 percent vacancy within a month.
“Rental rates in Carytown have probably fallen from $30 per square foot to $22 or $20 per square foot,” Douglas says, citing the obvious advantages to even a temporary tenant — it's a bit of income, it protects the property against natural decay that happens when things are boarded up and deters vandalism.
“Right now with the market in the condition it's in, we're pulling out all the stops,” he says of opportunities even for short-term leases.
Connie Jordan Nielsen, director of retail brokerage and a senior vice president also with Thalhimer, says she doesn't see the Perfect Nest or other itinerant retailers as a particular ray of sunshine — and even disputes that the storm clouds are really that thick.
“I'm very busy right now,” Nielsen says, noting that even the old Circuit City big-box spaces are nearly all leased to new retail clients. But she hardly pooh-poohs the notion that any tenant in a storm is a good solution for landlords in need.
“When you've got vacant space, as long as it's not a time period that prevents you from being able to lease to a permanent tenant, it's good,” she says.
Does putting a few curtains in the windows for a short-term tenant really have the effect of encouraging long-term tenants to come looking? Nielsen's equally unconvinced. “I've never seen that happen,” she says, though on the other hand, “I sold my own house at a garage sale one time.”
Tom Robinson, an area developer who's almost single-handedly brought about a resurgence for old Manchester, says he has a huge real-life example of temporary use leading to permanent use.
“Basically, that's what I've been doing with the Vacant Spaces Artful Places program,” he says. The program, which he spearheaded, put art in the windows of vacant buildings in a nine-block stretch of Broad Street. “Most of the spaces where we did this, they are rented out,” he says.
By his count, of 60 then-vacant buildings between Fourth and Henry streets, only 18 remain unused. The participating artists sold more than $17,000 worth of art out of the vacant storefront windows.
“Anytime we can do something with vacant buildings, it's a win-win situation for the owner, and it helps the embryonic businesses that can't commit to a long-term lease,” Robinson says. “If it doesn't work out, you've got a better-looking building than you started with.”
Sprinkle hopes the Perfect Nest sale does as well.
“We didn't do any advertising last time [for the Carytown grand opening] and we had a really good showing,” she says, estimating more than a hundred people attended the preview party. “You just never know until that night.”
And it could be months after the last Edwardian-style writing desk is loaded into a departing minivan or Suburban before it's known if the Perfect Nest helped another retailer discover a permanent roost at 5801 Patterson.
In the meantime, Sprinkle says, “this nest is temporary.” S