Dr. Peter Linneman discusses the condition of the brick and mortar retail market in this excerpt of the Fall 2017 issue of the Linneman Letter. Click below to download!
“Investors today are panicked that brick and mortar retail is dead. Yet research shows that over 50% of online sales are occurring through brick retailers…”
Since the recession, those who attend ICSC’s annual RECon Global Retail Real Estate Convention in Las Vegas have given a tepid thumbs up when the May event is over.
This year, the overall mood was very positive at ICSC. Attendance was up with more than 37,000 attendees. It is always a good sign to see people walking around with a smile on their face from one conference hall to the next.
The booths are also a good indication of how the market is doing. Many retailers and developers tend to have much larger elaborate booths when the market is doing well.
NAI Global is doing a great job bringing offices together to be more collaborative, and that was very evident at ICSC. That is especially important and helpful when referring business to another office. The strong platform allows them to can better serve a client in their local market. The NAI booth was alive with client meetings and NAI agents from across the globe.
The buzz over the Metro Phoenix market seemed vibrant. That was the sentiment shared by owners, retailers, developers, and brokers. Everybody seemed to be feeling very positive about upcoming projects and/or expansion plans and optimistic about the foreseeable future.
Landlords/developers and tenants seem to be more willing to work together in order to make each other successful instead of slowing down deals over small points. Key factors are consumer spending patterns and how we continue to see these increase over time.
Trends we’ve seen are the shifts in big box and mini major tenants. Grocery and fitness are the two strong categories that seem to be sturdy anchors in new retail developments. They drive heavy traffic for the rest of the center. With rates continuing to go up it’s tough for historical anchor tenants to consume so much square footage.
We are seeing tenants such as Target start to roll out their smaller, urban prototypes. Restaurants continue to be able to pay some of the highest rates, along with financial/banking tenants. These higher rates are more likely in the new construction projects with labor costs continuing to rise.
Overall, owners and developers are afraid of retail and shouldn’t be. There seems to be a common misconception that retail is struggling. Reports have surfaced about some of the larger department stores and sporting goods stores closing. The reality is that retail, like any other market, is evolving.
Consumers are now smarter shoppers. Millennials and Gen-X consumers factor in convenience more than ever. Shoppers want to get in, find what they need, and get out. Retailers are working to find how they can evolve, much like their customers, in order to keep up with the way people perceive shopping and shopping habits.
Restaurants continue to do great volume and lead the way in rent they can pay per square foot. A large factor to that is, once again, the Millennial and Gen-X consumers. The younger generations eat out more than ever, but they prefer a lower price-point, and quicker service.
We believe that we are not yet at the peak and that retail will continue to grow. Retail is not struggling. Instead, it is being revolutionized in order to better serve consumers’ shopping habits.
Patrick Anthon has been with NAI Horizon since 2014 and is an Associate with the Retail Properties Group. He specializes in landlord/tenant representation; retail/restaurant leasing and sales; and locating local and national retailers. Patrick provides clients with detailed property information that fit their needs.