While Still Pessimistic, Retail Outlook Begins To Rebound – Real Estate and Construction
Allen Matkins Leak Gamble Mallory & Natsis LLP
United States:
While still pessimistic, the retail outlook is starting to rebound
July 23, 2021
Allen Matkins Leak Gamble Mallory & Natsis LLP
To print this article, all you need to do is register or log in to Mondaq.com.
After a sustained decline in pessimism, retail could return from the bottom of the cycle, according to the latest study by Allen Matkins / UCLA Anderson Forecast California Commercial Real Estate. The current assessment is that retail real estate will see lower returns in 2024 compared to late 2021, but that doesn’t mean there is a lack of solidly targeted opportunities. New housing developments, whether multi-family or single-family houses, usually require retail outlets nearby. The booming housing market will continue to generate this demand. Although the survey responses superficially suggest a sustained decline in new retail property construction, the trend suggests a possible turnaround and a new cycle that will begin before the end of 2024.
Retail market leaders Rhonda Diaz Caldewey of JLL and Lee Edlund of Allen Matkins discuss what lies ahead for this sector of California’s commercial real estate market.
1. Retail had to drastically change its approach to development even before the pandemic, but there were successful dynamics that kept this market sector alive. What are these factors and what will change in the future?
Diaz Caldewey: Experience is the most important factor in relevance in retail centers. On the solid basis of omnichannel retail, tenants are primarily looking for A locations and less stationary locations as part of their overall strategy. Retailers will try, say, the top three when it may have been a target of 10 in a given region in the past. Smart landlords invest in development to improve the quality of their assets or they cannot compete in their market. B Centers will either be refurbished to meet the competitive challenge or will soon be downgraded to C status. When it comes to renovations and new developments, outdoor trumps demand in the indoor area. The urban outdoor village is constantly evolving as these environments have been shown to support sales much better than closed environments.
Nationally, it is a tenant market when it comes to retail centers. A different story, however, has developed for suburban villages and urban retail corridors, where tenant demand began last summer and has remained strong since then. Overall, landlords are much more open to adjusting their merchandising plan before COVID-19 or starting from scratch. Open to the emerging retail concepts and in collaboration with an even more discerning, online adapted consumer, developers listen carefully to the market like never before to capture a diverse and vibrant mix of retail.
Edlund: The survival of stationary retail continues to depend on customers’ desire for a social and emotional shopping and dining experience. Retailers need to continue innovating by offering face-to-face interactions that are complemented by options to order online from a home computer or mobile device. Consumers will return to some of the same restaurants they visited before the pandemic, especially those that offer al fresco dining. It can only be another facility (and probably one that pays its landlord less rent) serving them.
2. What type of tenants – anchor tenants or others – would developers and landlords want to expand their retail centers that could be different from what they were 2-3 years ago?
Diaz Caldewey: Savvy owners are aware of post-pandemic consumer psychology and its ongoing effects. Before the pandemic, the centers were faced with the decline of the department store and were considering other uses to replace these large multi-storey spaces. The pandemic has accelerated a dramatic shift and openness to the future of what a new retail hub means. Food and beverage remain active and agile despite the many challenges they continue to face. Plant-based approaches are gaining ground with increasing concerns about the impact of an industrialized meat and poultry chain on the environment and other factors. Ghost kitchens and food concepts that only offer delivery service appear before the pandemic and are active in the market with their refined models. New wellness and health tenants are entering the market with showrooms that would have taken a decade to enter the mainstream space, such as showrooms. Home hobbies and entertainment remain strong, as is pet care. Car-related showrooms in traditional retail centers have expanded during the pandemic, and will continue to do so, to include a new model for selling electric cars and scooters. A new grocery store that hits the market will be nothing more than a distribution center for delivery.
Edlund: The traditional department stores that have survived to this day are drastically reducing their footprints. Shop owners need to get both creative (in terms of usage) and realistic (in terms of rental prices). The anchor store locations are being repurposed for non-traditional purposes, such as: B. Large discount stores, grocery stores, fitness centers, and even distribution centers. A prominent indoor mall in the East Bay now has a DMV office among its tenants.
3. How does multi-family / residential development affect retail development? Is retail heavily dependent on where new homes are built?
Diaz Caldewey: We have been seeing a very low level of retail trade nationwide for a number of years. Most of the larger projects proposed and under construction have been mixed with a retail component. Working from home – or near your home in an ad hoc home office – is here to stay, and unique residential products will grow in these settings that were once only meant for vacation or retirement. Walk-in retail will be part of any large housing estate. Traditionally, retail follows the rooftops, and that won’t change the pandemic experience. Overall, the US is oversold. The development of the retail parks continues to be slow.
Edlund: The old adage “location, location, location” seems to apply even more to retail than to other types of products. Of course, residential development is important to retail, especially grocery stores, restaurants, large discount stores, and experience retailers (with the notable exception of movie theaters, which are facing tougher times). New housing developments in redeveloped urban areas and suburbs represent some of the few opportunities for new retail development, but offer little hope for existing difficult retail locations. Troubled urban retailers need not only private consumers but also a large influx of commuting, which will not materialize until the office sector is fully operational again.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.
POPULAR ARTICLES ON: United States Real Estate and Construction