Competition between communities for retail and restaurant locations is nothing new. As these industries have evolved over time, many companies have started growing at a slower pace, which means that communities have needed to take a strategic approach to attracting new businesses.
What’s new is the rapid shift in consumer behavior triggered by the COVID-19 pandemic. When consumers started visiting physical store locations in lower volumes, companies began shedding unprofitable locations to rebalance their portfolios. Some brands that were already struggling before the pandemic announced that they would close entirely.
The bleak headlines may lead you to believe that the retail and restaurant industries are dead and trying to recruit these businesses to your community is hopeless. But is that true?
In this blog post, we’ll check in on what the data has to say about the state of the retail and restaurant industries and share practical tips for remaining competitive in today’s retail recruitment environment.
What’s the State of the Retail and Restaurant Real Estate Market?
At the end of 2019, the retail and restaurant real estate industry was in a solid position. According to REIS, the national effective rent baseline was $18.82, and the vacancy baseline was 10.2%. By mid-2020, REIS updated its 2020 forecast to reflect an anticipated effective rent baseline of $16.74 and a vacancy rate baseline of 12.6%. If the U.S. economy enters a protracted slump, those 2020 forecasts shift to $16.47 and 13.7% respectively.
While this is hardly good news, it does make one thing clear. Retailers and restaurants may be closing locations, but they are far from closing all locations. Even if vacancies reach the high end of the forecast at 13.7%, U.S. shopping centers will hardly be ghost towns.
Economists from leading commercial real estate firms generally agree that demand for retail real estate will take a hit for a time but will bounce back within a few years, with some saying the recovery could begin as early as next year.
Finally, reports from retailers and restaurants indicate that some brands are continuing to open new locations, although at a slower rate. For example, the CEO of Chicken Salad Chick commented that the brand had originally planned to open 50 locations in 2020 but had shifted plans to open 30-40. Even in the middle of a pandemic, good companies are still growing.
How Can Communities Remain Competitive in the Retail Recruitment Process?
Keep these practical tips in mind to continue making progress toward your retail development goals.
1. Don’t give up hope.
Retailers aren’t closing all stores, and new stores are still being opened. If growing your retail sector is important to your community, there’s no reason to throw in the towel.
2. Data is more critical than ever.
While retailers are still opening some stores, it’s more competitive than ever to get their attention. With fewer stores being opened and more real estate options thanks to an uptick in vacancies, retailers are able and willing to shop around for the right opportunity. Furthermore, unstable economic conditions make retailers and restaurants more cautious in committing to a big investment like a new location.
All of this means that using data to make a case for your community is not negotiable. Retailers need unbiased, fact-based evidence that opening a location in your community will be a sound investment. Show them the customer potential in your market. Benchmark your market against the markets where they already operate. Show them how consumer activity in your market is changing and when it returns to normal.
3. Focus on building relationships.
Retail recruitment is a marathon, not a sprint. Even in the best economic conditions, it often takes months or years for a location to finally open. Be patient and use this time to build relationships with prospective businesses.
4. Be realistic about who you are targeting.
You may really want a certain brand to come to your community, but if the data doesn’t back up the decision, you will likely be disappointed. Find alternatives that are a better fit for your community and confirm that those brands are actively expanding before reaching out.
The Bottom Line
Recruiting retail and restaurant businesses to your community in the current economic environment is tough, but it is not impossible. By taking a data-driven approach to the process you can position your community to effectively compete for retail investment.
Buxton’s new public sector technology empowers you present a data-driven story to prospective retailers on the fly. Learn more about our all new retail match technology for communities.