Effect of liquor law on real estate
By: J. David Chapman/January 25, 2018
The countdown to implementation of the new liquor laws in Oklahoma has begun and the strategic jockeying of real estate plays are now evident all over the state. On Oct. 1, convenience stores will be able to sell cold, high-point beer and wine. Liquor stores can sell refrigerated beer, wine, and other grocery or convenience store products as long as they do not make up more than 20 percent of monthly sales. Liquor stores are commonly located in small strip centers alongside convenience stores. In preparation for the new law, we are seeing landlords terminate or not renew leases for those liquor stores. That change will alter what used to be a complementary tenant mix into a competitive situation with neighbors.
Commercial retail leases typically have non-compete clauses preventing the landlord/developer from signing leases with businesses that compete with one another. They also prevent tenants from taking on new lines or products that would compete with existing tenants. Oklahoma City-based 7-Eleven has made the decision not to renew any adjacent liquor store leases. I expect to see 7-Eleven expand the footprint of its existing stores into these recently available liquor store spaces. Shelf space in convenience stores is already at a premium, and with the new opportunity to sell high-point beer and wine, the situation will only worsen.
The new law will have an even bigger effect on liquor store real estate needs. Liquor stores have traditionally been a relatively easy space to procure, not needing much tenant improvement money to occupy the space. With the new legislation, successful liquor stores may now need coolers and refrigerators. The installation of refrigeration equipment will increase the tenant improvement costs and may significantly increase square footage to offer expected non-alcohol products. Some liquor store owners will not be able to afford the expanded footprint and facility improvements to take advantage of the new law. Others that are able to make the investment will surely benefit with expanded product offering. Likewise, convenience stores and grocery stores will have facility challenges to take advantage of the benefits of the new laws. The biggest winner of all may be the savvy real estate practitioners and landlords who can help those business owners navigate through the disruption and make prudent choices.
Dr. J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).