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Hamptons Commercial Real Estate Market: Exploring The Differences Between Sag Harbor, East Hampton, And More

John A. Viteritti

Sag Harbor is a local village and attracts a different kind of tenant. (File Photo)

In mid-April, I met with Elise Douglas, Corcoran Associate Broker and member of the Douglas/Matos Team, at her office in Southampton. Elise, who over the past ten years has focused her attention on the residential market in the Hamptons, has become one of the "go to" agents when it comes to the Hamptons commercial real estate market. The commercial market that we spoke about consisted primarily of retail, offices, restaurants, and storage facilities in the villages of East Hampton, Southampton and Sag Harbor, each with their own distinguishing characteristics.

What was it that caused you to become involved in the commercial market?

ED: My manager, Philip O'Connell, told me the managers had a meeting, and since many agents prefer to do residential and I had successfully completed transactions in the three areas we mentioned, asked would I want to be the agent they refered that kind of business to.

Why do some agents prefer not to do commercial?

ED: Commercial is a very different animal. It's completely numbers based. When it comes to leasing, a client is looking for commercial space, they know exactly where they want to rent, how much they want to pay, and how many square feet they need. When it comes to purchasing, it is very difficult to establish a "cap rate." (Author's note: A capitalization rate is the annual return that an investor expects to receive). When they buy a building, the return on that building at the time of purchase would not be an acceptable investment. They have to purchase assuming our market will rise and that they will get a return on their investment.

What type of tenants are you getting?

ED: We have some low-end leases, but we are getting a lot of national brands in Southampton and East Hampton. Sag Harbor is a local village and attracts a different kind of tenant.

In a previous article, I wrote about "anchor tenants." Please tell us how they fit into the Hamptons market.

ED: Some businesses are destination places for customers. An "anchor tenant" would be a destination. The movie theater in East Hampton would be an example. So would some restaurants, such as Citarella in East Hampton. Southampton has Hildreth's Home Goods, which has been there forever, and national brand name "pop-up" stores that are there from May to October. Sag Harbor, on the other hand, is a local town that swells for the summer. The stores are independently owned, as opposed to big box stores. They want a local flavor. East Hampton wants a national flavor.

You mentioned to me in an earlier conversation, how the traffic has affected the different communities. Tell us about that.

ED: Yes, it's interesting. The increase in traffic has practically prohibited traveling between towns for shopping and restaurants. People tend to stay local. Our population has swelled to a point where you can't move around anymore during our fifteen week summer period. It is also a reason why more and more national brands are looking for space west rather than east. It easier to get to.

What is the typical lease term?

ED: The landlords want five to ten year triple net leases (Author's note: tenant pays all landlord's expenses except debt service and taxes) with 4 percent annual increases tied to the consumer price index. (Author's note: the CPI is set monthly by the Bureau of Labor Statistics). They will permit "pop-up" stores that bring in their city personnel to operate the stores. We are always looking for places to house them. There isn't enough time to train new people for a summer season. In Sag Harbor, because the stores are open year round, they do employ local people.

Tell us about restaurants.

ED: Over the past ten years, we have seen more, and better restaurants attracting high-end chefs, and of course, high-end customers. The biggest problem with restaurants is not the rent, it's the start-up costs to get the look to attract customers. Another problem is "wet space." Restaurants are limited by the septic capacity, which determines the number of diners that may be accommodated. So we say changing names of restaurants, rather than new restaurants for that reason. The Town of Southampton is planning to put in sewers, which would permit dry spaces to convert to wet spaces, which would increase the number of restaurants.

If that were to happen in Southampton, where do you see the restaurants going?

ED: On Main Street and Jobs Lane. That's where the people are. The Tuscan House anchors Jobs Lane, and is open all year round. In Bridgehampton, Pierre's is a big draw right on Main Street. In Sag Harbor, it would be The American Hotel.

How does it become known when commercial space is available or someone is looking for space?

ED: Generally it's word of mouth among the commercial agents of the different real estate brokers. We cooperate in marketing our properties, which, as you know, is in the interests of the public we serve.

Is a restaurant a destination or a place you go to because you went someplace else?

ED: If you make a reservation, it's a destination. On the other hand, because circling the town for a parking place is the general rule, you are likely to shop and eat.

Do you see a new type of space demand emerging in the Hamptons?

ED: Yes, a demand for medical space in Hampton Bays and Quogue because of easier access to Southampton Hospital, and doctors who live by the fifteen minute rule (they have to live within fifteen minutes of the hospital).

What do you see as some of the personal benefits of working in commercial real estate as compared to residential?

ED: That's an interesting question. It's nine to five, Monday through Friday. I don't have to work weekends and nights.

John is a St. John's University graduate, licensed Real Estate broker, lecturer, teaches real estate license classes at LIU, NYU, and Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. www.johnaviteritti.com

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