Updated January 24, 2023:
We saw throughout the course of 2022 that demand for brick-and-mortar locations over a previously growing reliance on e-Commerce became ever-present. This was one of the primary driving factors for much of the retail expansion that occurred in the past year and remains a need that will likely drive the market for the foreseeable future. Location remains the top priority for retail tenants, with many retailers opting for redevelopments of existing properties over ground-up builds when the locations provide better visibility, access, and potential customer bases. Proximity and convenience have been the largest factors that retailers have paid attention to, and many have sought to utilize grocery-anchored neighborhood shopping centers to reach consumers better.
More consumers are choosing today to return to in-person shopping whenever possible, and retailers are adjusting to accommodate their shopping preferences. The combination of the desire to shop in person for most consumers, and the desire to be outside following months of lockdown, has led to an even stronger call for open-air retail and walkability. This has meant that many traditional shopping malls have closed down or gone through redevelopment while open-air concepts are seeing more demand than ever.
Additionally, consumers today have adjusted their shopping methodology to utilize online methods in tandem with in-person shopping. This has meant that shoppers have made use of online shopping methods and social media to examine and compare products but then travel to physical locations for the actual purchasing stage. As a result, retailers that have fully embraced and implemented omnichannel commerce have been much more successful in the current economic climate.
Going hand-in-hand with this is convenience and ease of access, which, when combined with climbing rent rates, has meant a rise in QSRs in retail spaces over traditional sit and dine concepts. In the current market, the retail that is thriving is that which is catering to the needs of the consumer, making it easier for them to acquire goods and services in the method that is preferable to them.
As you probably know, the state of retail has changed dramatically. The pandemic and the surge in online shopping has created a cosmic shift in how consumers view retail spaces. However, the demand for retail locations is on the upswing, according to the National Association of Realtors. Brick-and-mortar retail locations are still a huge part of the United States economy.
- The National Retail Federation estimates that retail sales will grow to more than $4.44 trillion in 2021. Despite the popularity of online shopping, close to 50 percent of consumers say they still enjoy physical retail experiences. In fact, e-commerce actually declined slightly in 2021 and remains steady at about 13 percent of retail spending.
- Omnichannel retail (the combination of using both physical location and digital sites) is here to stay. The customer experience needs to be equally convenient and memorable in both locations.
- Many retail categories continue to grow. Food and beverage businesses are a staple of physical retail, but categories like clothing, home improvement products, furniture, and sporting goods are seeing an increase in sales volume.
This means that the retail sites you select are more important than ever. Tenants must be savvier about what constitutes a profitable opportunity and how redevelopment in the right spaces can lead to long-term gains.
Location is Still #1
Tenants must thoroughly understand the population in the areas they’re considering. Remote work has created population surges in previously-untapped geographies and neighborhoods.
Redevelopment opportunities are plentiful and enable you to get in at the ground floor in thriving new markets. Strategic retailers do not shy away from a property because it needs improvement or because it’s located in an area that is still in transition.
As you consider a location, do a deep dive into the surrounding population’s demographics and its potential for future expansion. Consider:
- Household incomes
- Population growth
- New housing in the area
- Daytime population (which may be on the upswing, due to work-from-home professionals)
Close to 50 percent of consumers still prefer to shop at a retail location rather than online, and some businesses (such as food and beverage, medical services, entertainment, and home products) require a physical location.
Even younger consumers, who grew up with digital shopping, still prefer the brick-and-mortar experience at times. A healthy 82 percent of millennials seek out physical locations for products like electronics, apparel, and drugstore items. Know your market and understand what types of products and services they want and need.
Your competitors’ locations should also be a factor in your decision-making. Some tenants prefer to be in close proximity to similar businesses to capture their customer bases, whereas others want a safe distance.
Food and retail businesses can do very well when located near companies with hundreds of workers (i.e. warehouses, call centers, etc.). Become familiar with neighboring tenants and the demographics of the people in those properties.
Foot traffic and vehicles per day (VPD) are good signs of a vibrant retail location. But in areas where residential properties are being developed, you may want to have a “first mover advantage,” and capture the new market before your competitors do.
Regardless of your location, consider how redevelopment of a space could benefit you and the community long-term.
Even brands with the best digital strategies will continue to get new customers through their signage and merchandising efforts.
As you consider properties, look at how an upgraded facade can draw in more attention. Is the monument sign for the property well-placed and well-maintained? Understand any zoning restrictions that may pertain to you and the process for changing or enhancing your signage with your landlord, as this will be a critical part of your development plan and can add long-term value.
The ability to walk or drive into a retail location has always been important, but some retailers now need to factor in options for drive-thrus or curbside pick-up. Making sure that customers can find, enter, and exit your location without confusion or frustration is key.
Consider the size of the space you need, the safety and signals at the intersection, the location and size of parking options, and whether you might need a turn-in lane or other unique features.
Drive-thrus in the food industry can increase revenues by as much as 53 percent, according to a recent report by QSR. In addition, buy online and pick-up in-store (BOPIS) is still trending. U.S. shoppers spent more than $74 billion last year, a growth rate of close to 107 percent.
That means you need to consider not only who will shop, dine, or visit a location but also how they will approach your entrance.
Especially during holidays and peak traffic times, having adequate and well-lit parking can make all the difference in customer volume and spending.
- Take into account other tenants’ hours of operation in the center (if applicable)
- Factor in lighting and security cameras
- Ensure the owner keeps up with maintenance, repair, restriping, and other improvements that will make access easier and safer
Ideal Tenant Mix
If you are considering an inline space at a retail center, consider the mix of other tenants. A center that provides today’s consumer with a one-stop shopping/dining/service experience is critical.
For example, having an ice cream shop next to a family eating establishment can build business for both tenants. On the other hand, be sure to factor in whether the current roster might include tenants you would not want to be associated with. For example, a smoke shop or pawn shop could be a deterrent for some retailers.
Check out this blog post for more information on how we curate a profitable multi-tenant mix in a relatively short period of time and other details to look for in a shopping center.
It is evident there has been a rise in redevelopment of commercial retail spaces in recent years and we expect that trend to continue. In addition, remember these four factors as you look at a redeveloped space.
When it comes to leasing, choosing the right improved or redeveloped space to fit your needs, will be a benefit to the community, its residents, and of course, your long-term prosperity.
JEFF CARPENTER >
As a Partner at SimonCRE, Jeff Carpenter is responsible for sourcing opportunities in both ground up development and through the acquisition of value add assets. Jeff has successfully completed projects across the country and has been an integral part of the exponential growth SimonCRE has experienced since he joined.