Recently, the Metropolitan Capital team descended onto Vegas to attend the annual RECon Conference held by the International Council of Shopping Center’s (ICSC) as we do every year. This year was interesting to watch as the “perception” of the “Amazon effect” was in full swing. There are new buzzwords in the industry like “treasure finders” and “experiential retail” that describe retailers that appear to be immune to online sales. The show had excellent attendance which indicates that developers and retailers alike are working to adapt to the changes that are coming from many directions. These directions include the rise of lifestyle centers, the passing of the traditional chains and the need to rethink old retail configurations to repurpose them for how people are going to shop and live going forward.
The following are five takeaways from the conference:
- Now is a good time to sell if you plan on disposing of your shopping center. Interest rates are going up, but not so much that you can’t still get a good price for your asset. Several REITS are actively disposing of non-core assets, tertiary market shopping centers, and the private sector buyers are attracted to these assets as they typically are the dominant centers within these markets.
- Competition is fierce for grocery anchored shopping centers, and it’s getting more difficult for buyers to underwrite power center style retail. REITS and equity funds are seeking grocery anchored developments over traditional power center developments and as such, cap rates are still aggressive for new grocery anchored developments. If you are building a traditional power center, you’ll need to have some element of “experiential retail” along with restaurant pads and discount retailers to occupy the big “boxes” to attract capital.
- The old closed in malls will continue to be repurposed and evolve. Many malls may be repurposed to house technical centers, junior college campuses, and medical uses. Not too shocking, the buying pool has diminished for these assets, increasing cap rates on enclosed mall properties. Some retail experts believe that the number of enclosed malls in America will reduce by half of what it is today.
- Amazon’s purchase of Whole Foods has not disrupted the grocery space as many thought it would. There were some price reductions at Whole Foods, but nothing significant. What has happened is the competition has woken up and are being proactive to innovate and keep up with Amazon. Other grocers are providing more online presence, the ability to buy groceries at home and pick them up at the store vs. shopping in the store.
- Tenant mix is crucial. There needs to be a reason to come to the shopping center (hence why the grocery-anchored centers still trade at a premium). If you do not have a grocer, you will need to have a “treasure finder” like Ross Dress for Less or “experiential retail” like a movie theater, restaurants or trampoline park so that the shopper has a purpose to go to the center. Ifly is another “experiential retail” example. Last, hotels seem to be making their way into mixed-use retail centers. Marriot is one of the leaders in this trend with their select service brand. In some cases, older vacant “big box” spaces are being demolished to make room for hotels.
The retail sector will continue to evolve, and it is great to see the industry professionals forging ahead in this rapidly changing environment vs. freezing in their tracks and doing nothing. The meeting hall was filled with people, and there were meetings going on throughout the entire conference. Retail is certainly not going away, but it is fascinating to watch the changes in site plans, tenant mix, configurations and the multiple mixed uses that we see in today’s developments.
The author, Todd McNeill, is a Principal / Director in the Dallas office of Metropolitan Capital Advisors. Todd can be reached at [email protected] or at 972-267-0600