Trends in the retail industry are inevitably affected and influenced by technological advancements, changing market conditions and evolving consumer behavior. Consequently, both retailers and commercial real estate operators will have to improvise and adapt quickly to such changes in order to stay competitive in their markets.
We reached out to various industry experts in the retail sector to provide their perspective on what they are excited about and where retail trends are heading in 2018.
Here is what the experts say on Retail Trends for 2018:
2018 should be a continuation of more disruption in the retail industry. Uses of concern include big boxes, pharmacies, bank branches, automotive, and food halls. The challenge as big boxes become available is there are no new retailers of size looking for space to backfill these vacancies. Alternative uses will be necessary to fill these big box spaces. Never more important is the old adage: Location, Location, Location-for example, the soon to be vacant Toys ‘R Us boxes will be more easily leased because of their phenomenal locations. The pharmacy industry will continue to come under attack with Amazon jumping in this industry in a big way The Banking industry will continue to make changes on how they serve their clientele. How much longer will they need 4 – 6,000 sf branches?
When was the last time you were in a bank branch? Bank of America closed a majority of their drive thru lanes in the last few years. The downsizing of their branches should be next. Unlike the big boxes, these buildings should be more easily released and redeveloped-again because of their locations, usually at hard corners and lighted intersections. The automotive industry due to self- driving cars and ride shares will contribute to changes in the automotive uses such as parking garages, travel plazas (truck stops), tire shops and oil lubes service centers. Then there are the proposed food halls. The amount of proposed food halls cannot all be completed nor be successful if done. A few can bring uniqueness to a project, but we definitely do not need the projected number that are on the books for South Florida.
That being said, the South Florida real estate climate remains frothy. Pricing continues to be high, rents are growing in high demand markets such as Aventura, Pinecrest and Doral, and development is at an all-time low. Tenants’ sales volumes in these markets continue to be reporting high as well.
Lastly, two uncertainties that will definitely impact our business will be the proposed tax bill and the incoming population growth. The influx of those impacted by natural disasters will add further dimension to our ever changing industry.”
Beth Azor, President, Azor Advisory Services
The acquisitions criteria for many investors now include smaller bay-sized, service-oriented tenants such as restaurants, beauty, medical, fitness, etc. To that end, the majority of shopping centers have already naturally evolved into a more service-oriented tenant roster. Grocery anchored centers are still in high demand, while many centers with high vacancy rates are being evaluated for re-development and re-purposing to alternative uses such as self-storage, hotel and multifamily/retail mixed use projects.”
Kirk Olson, First Vice President Investments, Olson Kristol Group
We see both challenge and opportunity with shopping centers as the pace of retail evolution continues to accelerate in an environment with limited new construction, positive economic and demographic conditions and some of the best property and market level operating metrics in the history of retail.”
Casey Rosen, Executive Vice President, CBRE
Despite the constant evolution of the retail sector, there is ample liquidity across the risk spectrum for various acquisition opportunities, although seemingly more for core-plus/value-add opportunities.
Additionally, the debt markets remain robust for grocery anchored retail centers and are increasingly focused on high quality lifestyle and urban retail properties with a curated tenancy that is internet resistant.”
Chris Drew, Senior Managing Director, HFF
We are most excited to see the growth of innovative retailers, entertainment concepts and especially restaurants. More and more projects are being developed to accommodate the specific needs of the new generation of occupiers. If you like to work out, go out at night and eat, you are going to be very spoiled.”
David Ward, Principal, H&R Retail
Coming from the Investment Sales side of the market, we are watching the adoption of alternative uses in our client’s centers that are currently dealing with vacancy issues. As medical uses, fitness, and entertainment become more mainstream the possibility of greatly increasing the NOI through these “new” uses could be a big win for our clients.”
Karly Iacono, Associate Director, Iacono Retail Group
As we near the end of 2017, we continue to be in a low interest and cap environment, and investors agree that pricing of commercial real estate is frothy. As such, cap-rate spreads are of concern should rates rise more rapidly than expected.
Although fundamentals show relative stability, retail is clearly in transition creating some aversion to retail investments and causing transaction volume to be down double-digits in 2017. Given the changes, and the headline risk around retail, institutional investors are following retailer’s leads and focusing on primary markets and gateway cities in an effort to minimize risk. This institutional focus on primary markets has made it challenging for private investors to transact in them, driving many private buyers to focus on secondary markets where competition is thin.
I anticipate that transaction volume will remain off from its peaks in 2018 as retail real estate investors remain disciplined in their investment strategies, and selective in their purchases, as they continue to try to understand the changes impacting the sector.”
Gabriel Navarro, Principal, MMG Equity Partners