SPACE IS THE PLACE stimulated development , but the law of supply and demand still holds . This has shifted the balance of power , says Dan Burrell , a franchisee and area developer / director with Jersey Mike ’ s Subs . “ As more competition in a growing economy fights for space , we are back in a landlord ’ s market ,” he says . “ That reduces tenant improvement terms and other tenant incentives and makes it difficult for singleunit franchisees to compete .”
Burrell anticipates additional changes as the real estate market continues to tighten . “ I expect landlords to not even offer exclusives , which help protect investments by franchisees . If franchisees want to get in the game , expect slim margins because rent increases continue to require more risk .”
The price of land is rising , with competition keenest for prime space in hightraffic , high-visibility corridors — especially for brands with similar footprints and customer demographics , says Schram .
Says Thatcher , “ The reality is we have fewer sites that are demographically feasible for new development . Many markets have been overbuilt and we ’ re seeing a trend toward urbanism . Cities want higher and better land use .”
Back to brick-and-mortar A change few predicted when the dot-com boom began disrupting traditional retail is also affecting the real estate market . Although online sales made shopping from home easier and weakened many retailers , some online businesses are now establishing physical sales outlets , adding to the competition for the best locations . On the other side , many traditional brickand-mortar stores pressured into adopting digital sales channels are converting some of their real estate into warehouses and distribution centers for their online sales . “ All the lines are blurring and coming together , driving the demand and absorption of gross leasable space ,” says Thatcher .
Mall operators also felt the pinch of the recession and e-commerce , but they are evolving and adapting too . “ There has been a shift toward outdoor malls and power centers ,” says Chris Naylon , net lease advisor for the Sands Investment Group in Sherman Oaks , Calif . He sees the changing tenant and customer mix at malls as an opportunity for franchise brands seeking space , especially those that serve food .
“ Customers are looking for an experience beyond just shopping ,” he says . “ I
“ The reality is we have fewer sites that are demographically feasible for new development ."
Robert Thacher
believe restaurants will play a large role in revitalizing tired malls . They play an important part in adding to the overall shopping experience and attracting additional prospective shoppers .”
More regulations , more delays While you can expect new rules and regulations to cause delays with permitting , sometimes the delays stem from a different cause : smaller towns often have only one or two planners on staff , who become overloaded by increased demands from developers . If a region becomes attractive for franchises and other developers , its larger cities might have an adequate number of planners on hand to handle the influx , but the smaller towns around it most likely don ’ t .
“ The Orlando DMA in particular is loaded with towns that are simply overwhelmed with requests for new development approvals ,” says Ray Lauletti , vice president of real estate for Arby ’ s Restaurant Group . And , he says , “ As local governments shift more of the work to outside consultants and independent contractors , the store planning process has become even more unpredictable .”
Further , as more municipalities feel overwhelmed by commercial development , many are attempting to control it by imposing limits on certain types of businesses , adding another level of competition for the top sites . “ Towns like Kissimmee in Florida and Franklin in the Nashville DMA have limited the number of locations they will allow QSRs with drive-thru locations ,” says Lauletti . “ In addition to increasing time to gain approval , those municipal limitations on site supply drive up the price of suitable sites where drivethrus are allowed .”
What can you do ? Franchise real estate and site selection pros who have dealt with the ups and downs of several economic cycles have learned ways to smooth the path to opening new locations , no matter what the external conditions . As the environment continues to shift around them , their ideas , detailed below , are yet another reminder of the need to continually adapt , and adjust development plans and schedules to fit a changing marketplace .
• Build in more time . Regulations at every level of government are in neverending flux . Ignoring their impact on a project ’ s start-to-finish timeline is a mistake . “ We have significantly altered our store planning expectations and added time to our store opening schedule ,” says Lauletti . “ While senior management is not particularly excited by these delays , it pays to be realistic and to communicate early and often about delays in the planning and zoning process .” For any new build project anywhere in the country , he says , “ We now estimate a minimum of 18 months from site identification to opening . In Florida , we add at least 6 months
58 MULTI-UNIT FRANCHISEE ISSUE III , 2017