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CoStar's Florance on Bricks vs. Online

By Jonathan O'Connell

LAS VEGAS -- Andy Florance, chief executive of the D.C.-based real estate data firm CoStar Group, can provide extremely deep analysis of just about any segment of the commercial real estate industry but when I ran into him at the International Council of Shopping Centers conference, he was thinking about Cleveland Park.

The paradox in that neighborhood, in Northwest D.C., is that there are extremely positive characteristics for retailers, i.e. high incomes in a dense area and active sidewalks that encourage shopping. Essentially, it has all the enviable demographic stats in a market that is considered one of the strongest in the country. But Cleveland Park is not a hotbed of retail – in fact it has had trouble retaining retailers. Why?

Florance is bullish on the retail market in the next few years - he thinks retail vacancy rates have peaked nationally and inventory is so low that there will be a lot of deals in 2010. But he sees Internet sellers taking a greater piece of the pie, particularly in affluent areas like Cleveland Park. The main issue, he says, is taxes. Local brick-and-mortar shops pay property and sales taxes that Amazon mostly doesn’t. That, Florance says, makes for tough odds for pet supplies stores, specialty food shops and others.

“If you run a 100 meter race, but you give the online seller a 10 meter head start every time, it’s not exactly fair,” he said.

Florance (whose company got a nice tax break itself to move from Bethesda to D.C.) says the answer is either to lower taxes locally or force the online sellers to somehow pay their share.

“I think the demographics are so strong in D.C. in some areas that I don’t think it’s a big effect,” he said. “But it is a structural issue.”

Here’s another telling anecdote from Florance: At Capital Business, we’ve covered the glut of “distressed” properties that aren’t selling. Well, at the CoStar booth, one of the more popular at the entire ICSC convention, Florance receives around 500 visitors a day. He has each visitor fill in a “lead slip” saying why they came – and of course he has data on them. Seventy five percent, he said, wrote something akin to: “I’m looking for distressed properties.” Seventy-five percent! If a property is in demand at that level, can it still be considered distressed?

By Dan Beyers  |  May 25, 2010; 9:48 AM ET
 
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