The retail industry’s evolution has accelerated over the last decade, as brick and mortar retailers face competition from online retailers and consumers continue to demand new ways of interacting with brands.
Nowhere are these changes more apparent than in retailers’ real estate strategies. Smaller footprints, new store formats, store closures and relocations to areas attracting population growth are all influencing the future of real estate.
But, what’s ahead for the retail real estate market in 2015?
We recently talked with Paul Schlesinger, Buxton senior vice president, to get his take on what the retail real estate market has in store this coming year.
Here’s what he had to say:
Q. What markets do you expect to present the best opportunities in 2015 (domestic and/or international)?
A. Clearly the best opportunities for retail continue to be in the U.S. and Asia. The growth of a Chinese middle class and the sheer lack of retail stores in that country should correlate with significant opportunities for growth. In the U.S., we still have the wealthiest, highest consuming population on the planet—all good for retail.
Q. Describe the competition for retail space. Will it be harder or easier to find new real estate opportunities in the next year?
A. Good retail space has always been, is and will continue to be at a premium. Simon Properties, the dominant mall and outlet mall landlord, has made significant capital investments in its “A” properties, and both demand and rents are up for space in these properties. A lot of 5 year leases (and older 10 year leases) that were done at cheap rates during the recession are up for renewal and many of these existing retailers will be forced out of these spaces by the higher rents.
Q. Do you see the industry moving toward new formats in the next year (e.g. smaller/larger footprint, non-traditional locations, etc.)?
A. There hasn’t been a major new mall built in America in years, and it’s unlikely that there will be one in the future. I think the most interesting opportunity in retail might be the revitalization of select urban core markets. This will come about as a result of our continued growth of technology companies, the high wages they pay, and the types of employees they hire—young, creative consumers. At the other end of the spectrum, downtown Cleveland is ten years into its redevelopment—and sure enough, young people are moving back, and the shops and restaurants are quickly following.
Q. Are certain types of retail centers becoming more or less popular (e.g. outlet malls, lifestyle centers, traditional malls, traditional strip centers, downtown shopping centers, etc.)?
A. Today’s consumer is looking for an experience that feels more real, more fun, with more variety in the shopping experience. Architecture, design, natural sunlight, integration with the outdoors, alternative uses like better and more innovative restaurants, etc. will continue to gain traction with the consumer.
Q. What do you think will be the most important retail real estate trend(s) in 2015?
A. Most significant will be the continued migration of retail sales to the internet, both to Amazon, and to retailers’ own sites. This will place continued pressure on oversized retail store fleets, and we will continue to see downsizing of these fleets—most significantly in the juniors’ fashion business. These trends, especially the migration to the internet, will continue to put pressure on marginal properties and also on “main street” retail space in small towns across America.
Want to continue the conversation and discover how you can use analytics to answer your most pressing retail real estate questions while navigating the rough retail terrain? Don’t be shy, reach out. We’re here to help.