Comparing the commercial real estate market in the last five years to a haboob might be an understatement. The industry suffered unfortunate collateral damage from the storm, but is rebounding with dynamic changes and improved focus. The obstacles have been significant as national retailers from fast food restaurants to clothing stores have closed underperforming locations and right-sized retail spaces, but for many of them, these changes have allowed the companies to ride out the economic storm that began in 2008. They have also changed the landscape of commercial retail real estate.
Commercial retail space was in high demand in 2007 as census data shows that there was 14.2 billion square feet of retail space in use before the big wall of dust hit. Since then, the amount of retail real estate in use has been on a steady decline. The major factors contributing to this were the floundering economy coupled with an increase in online shopping. After five years of storms, trends are beginning to demonstrate positive growth. Indicators through the first quarter of this year show that 11.9 million square feet of retail space was vacated compared to 25.4 million square feet during the the same time last year. Another buoy, retailers have announced the number of store openings are nearly twice the number of store closings. These are both rays of sunshine suggesting that the storm has past.
Real estate expert, Joshua Simon, president of SimonCRE, has been on the forefront of the commercial real estate storm. Simon is a specialist in retail shopping centers with seven projects across the country currently in various stages of development. He has noted that the market appears to be coming into equilibrium as a new balance is established with retail space and online shopping. According to Simon, the current supply of commercial real estate is low with very little new construction. This means that much of the space that is available is either being used or has been purchased because of favorable financial conditions.
“As the commercial real estate market picks back up, there are two predominant trends that are emerging across the country,” says Simon on the future outlook. “Commodity and product retailers are downsizing their space in an effort to shed costly overhead and utilize less expensive online sales tools. At the same time, retail space is transitioning from product focused venues to experiential retail. Coffee houses, wine bars and shopping malls are continuing to see increased customer traffic because they offer the consumer an encounter they cannot get at home.”
Simon noted that an example of the experiential trend is with grocers who are now offering experiences to their customers instead of solely a place to purchase goods. The recent surge of in-grocery wine bars, coffee shops, dine-in seating and full floral departments underscores grocers commitment to a shopping experience.
According to Simon, understanding market trends is imperative to longevity and success in not only retail but real estate as well. He has been a student of the industry since his sixteenth birthday when he began driving workers and materials to and from retail construction sites. Approaching his tenth year in commercial real estate development, he has leased and developed more than two million square feet of retail space throughout the United States. Many of his recent transactions have been with shopping centers that offer experiential components to consumers.
“As economic storms ebb and flow, I’ve found that it is important to seize an opportunity when it presents itself,” says Simon on his business philosophy. “Understanding the reason behind market fluctuations is key to successfully riding out the storm.”