Post #319: $60/sq ft/yr.

Posted on July 15, 2019

After making a few informal inquiries, it seems that $60/square foot/year is the new normal rate for prime retail space on Maple Avenue.  I’ve stumbled across that figure in several prior posts (search for it if you want).  So I thought I might comment on that a bit, in the context of what makes Maple Avenue retail property worth that.

The point of this posting is that a lot of what makes Maple Avenue tick, right now, runs contrary to a lot of what people seem to claim about Maple Avenue.  And run contrary to some of the stated goals of the current MAC statute.

What are Maple Avenue’s strengths from a retail perspective?

First, retail rents are that level because the business climate on Maple will support that.  That’s the way this market works.  It’s the profits of the underlying businesses that support that level of rent.  Rents are high because Maple is a fairly lucrative location for doing retail business.  Further, the high and rising level of rent belies any notion of a crisis in the retail space along Maple.  To the contrary, it shows the overall health of the market.

Second, that naked figure of $60 is not too meaningful in-and-of-itself unless you know how taxes, maintenance, and utilities are handled.  Rent can be quoted inclusive of all of those, or it can be quote excluding (net) of those items (a so-called net-net-net lease).  For the time being, let me assume that $60 is the full cost, with no separate payment for taxes, maintenance, and utilities.

For example, the combined Starbucks drive-through and Just Tires are being offered for sale at $961 per retail square foot.  (See this reference for the ad.)  From the cited asking price and capitalization rate (or the Net Operating Income and square footage), you can deduce that the two properties together generate $51/square foot/year in net operating income.  Add in some operating costs, and the likely effective rent (inclusive of tax, maintenance, and utilities) has to be in the neighborhood of $60/square foot/year.

Third, if you read enough retail property sales ads for Maple Avenue property, you soon realize that the traffic level on Maple is considered a big asset.  Virtually every flyer or brochure emphasizes that 33,000 cars/day pass that location (e.g., this ad, or this ad).

Fourth, flyers for these properties typically list the many national chains located on Maple as a further selling point or asset.  You can see that in (e.g.) the flyer for the retail property planned for the Marco Polo site (.pdf).  The presence of many national and regional chains means that this strip is not some backwater, but in fact is (again) a lucrative business location.

Fifth, it goes without saying that all these commercial real estate flyers emphasize the high incomes in the surrounding area.  And they further emphasize the sheer number of high-income families within a comfortable driving distance of Maple Avenue.  Maple is lucrative, in large part, because it is surrounded by people who can afford to live in a house in Vienna.

In short, Maple Avenue is such an extendsive and viable retail district because of:

  1. The huge amount of vehicular traffic on Maple.
  2. The co-location of many national and regional chains on Maple.
  3. The number of high-income households in the area surrounding Maple.

In short, we seem to have a viable commercial district because it is car-focused and chain-store-focused.  At least, that’s what the ads for the retail rentals strongly imply.

If somebody claims they can change that — that MAC zoning will create a “vibrant pedestrian shopping” zone, with upscale and local retail instead of national and local chains — I think the burden of proof really lies with them.  Before you stake the future of Maple Avenue on that premise, you really ought to see some well-laid-out detailed plan as to how that will be accomplished.  Or you should go slowly, and see how the first few MAC buildings work out.  Because that model of people walking to upscale boutiques runs completely contrary to how Maple is marketed today.  And you can’t buck the market just by making the vague claim that something will happen that the market is not supplying now.

The next time you hear about the awful traffic on Maple, think of it as the life blood of our commercial district.  Next time you hear about how MAC is going to attract something other than those tacky national chains, my response is, that’s not how the people who deal in that real estate view things.