What’s In Store?
Retail Real Estate. What’s In Store? A recent story in the Economist entitled, Amazon, the world’s most remarkable firm, is just getting started. caught my eye. Astounding is the fact that Amazon alone apparently accounts for “more than half of every new dollar spent online in America”. It’s the 5th largest Company in the world, and it’s reach and diversity is immense. It has gone from an online book seller, to an immense eCommerce platform with cloud computing capabilities. Why do I mention this? Because it is a clear example of the disruptive effects on online shopping to the traditional retail real estate landscape.
Expectations are Changing
Retail customer expectations and behaviors are rapidly changing. The effect on traditional real estate is becoming more and more apparent with each passing day. I used to think that certain types of retail sales were likely immune to the growth of online shopping. Foolish me. Eyeglasses, shoes, live house plants, prepared gourmet meals, and tropical fish can all be purchased online.
What are the effects?
What effect does this have on real estate? Plenty it seems. How people spend their money is changing. As is the entire experience around shopping. Customer’s are better informed and more educated than ever. They know all about the product before they even set foot in the store (if they even go there at all). A recent study by PwC Canada entitled Emerging Trends in Canadian Real Estate 2017, suggests that customers are embracing what has been labelled “retail-tainment”. Apparently we are all much more online savvy, but we crave “interaction” and an experience when we shop. Perhaps its all about creating an environment where consumers linger longer, and inevitably spend more.
Is Retail Real Estate losing favor?
Is traditional retail real estate losing favor among investors? It would appear so. The PwC study also looked at 14 real estate assets types. They ranked them as a Buy, Hold, or Sell. A total of 1500 Canadian real estate professionals were surveyed. Power/BigBox Centres were considered a Buy by only 9.3% of respondents, a Hold by 40.3%, and a Sell by 49.3% of respondents. Investment prospects by respondents for this type of real estate was considered “fair”. Development prospects for Regional Malls and Power Centres “poor”.
If further evidence is required that the retail landscape is changing, look no further than RioCan REIT. Canada’s largest REIT is refocusing (some say shifting) its attention to apartments. Recently interviewed in Rental Housing Business magazine, President and CEO Ed Sonshine indicated that after several years of healthy rental rate increases, retailers are pushing back, and online shopping options are “posing competition for shoppers dollars”. RioCan is aggressively refocusing. They are either renovating existing retail developments, and “de-malling” others, because, as Ed Sonshine mentions, “People may change their shopping habits, they may change their working habits,” he said. “They’ll always need a roof over their head.”
So what are the implications for investors and borrowers? Uncompetitive retail centres will inevitably need to be repositioned. The challenge is two-fold. When to make the re-positioning decision, and what direction to take your centre in. Property trade area, demographics, site visibility and exposure, as well as proximity to transit and major thoroughfares are all considerations.
In many core neighbourhoods, a mix of land uses, higher density, including in many cases multi-family residential, appears to be a winning combination. In suburban locations, the options are possibly more limited. Some centres are becoming more “service” oriented, with everything from fitness clubs and day care centres, to government offices focused on service delivery to local residents.
Never has it been more important to have knowledge of your local marketplace, and a pulse on your community. A good real estate location will always be a good location. The use it is put to is the variable. Opportunities abound for nimble investors able to stay ahead of the curve. Work with the needs of today’s retailers and consumers.