Retail Real Estate Trend: Non-Traditional Tenants Go A-List

Web-Proof Services Are Attracting Landlord Interest as Some Retailers Falter

Last month I served on a panel at ICSC’s PA/NJ/DE Conference and Dealmaking event in Atlantic City. My group’s discussion focused on non-traditional tenants and their growing popularity in commercial retail leasing. On the four-person panel, I was the sole spokesman for the landlord side, with the rest of the members representing non-traditional tenants who lease space (or want to lease) in shopping centers. As might be expected, they were all attracted by the visibility, convenience and traffic a popular shopping center offers. They want to be where the customers are. No surprise there.

At Levin, we have many non-traditional tenants under lease – fitness centers, health services, day care providers, gaming centers, and, of course, restaurants. Not long ago, like most managers in the business of commercial retail leasing, we were reluctant to go with tenants other than more traditional retailers. That’s changed big time. I’d like to tell you why non-traditionals are now on our A-list.

Behind the Trend #1: Non-Traditional Tenants Are Amazon-Proof
While many retailers are struggling against branded online stores and behemoths like Amazon, service businesses face no web-based competition at all. WebMD can’t stitch up a cut. YouTube videos are no substitute for a Nautilus circuit or Spin class. You can’t leave your toddler with while you work. You get the point. Services and experiences can’t be provided by the Internet (at least not yet). We in commercial retail leasing like that. We’re looking for tenants that are fiscally solid and likely to stay that way.

Behind the Trend #2: Service Businesses Drive Traffic
In our era of the time-starved lifestyle, people look to consolidate as many of their errands and activities as possible. A shopping center that offers the opportunity to combine a fitness session with grocery shopping and a prescription refill will draw traffic, benefitting multiple tenants and attracting new ones. Our grocery tenants, for example, report a substantial flow of customers from their fitness center neighbors. That’s a win-win-win for the tenants, landlord and shoppers.

Behind the Trend #3: Long Leases and Solid Financials
Non-traditional tenants typically seek longer leases, often because of the higher construction costs due to the more extensive build-outs they initially require. They also tend to be stronger financially and have better credit than many of today’s retailers. Both these qualities make them a highly desirable addition to the tenant mix.

Non-Traditionals Do Pose Some Challenges in Retail Leasing
Since nothing’s perfect, we have to consider the challenges that these businesses – appealing as they are – present. The most common is parking. A fitness center user, for example, may tie up two hours of parking space per visit. We’re always very careful to assure that there’s adequate parking before any new lease is signed. Another roadblock may be image. Some specialized medical centers, for example, can seem out of place among the existing mix of restaurants, boutiques and entertainment providers. We’re sensitive about overall image and have declined some prospective tenants that weren’t a good “fit.”

At Levin-Managed Properties Non-Traditionals Are Here to Stay
Our portfolio has many fitness centers, which are now considered mainstream uses in today’s shopping centers. Levin-managed properties are home to most of the major national brands, including Blink, Crunch, LA Fitness, Leisure, Snap and Planet Fitness.

More health services are coming on board with us. We just signed a lease for 2,500 square feet at our Mayfair Shopping Center (Commack, NY) with GoHealth, a walk-in clinic. This medical services model is growing rapidly, with a third of the new establishments situated in shopping centers. We expect to see more of them as Levin tenants in the near future. Physical therapy services are interested in shopping center space, too. A Kessler rehab is located in our Aldrich Plaza (Howell, NJ).

Daycare (Apple Hill Academy and C2 Education Center), postal services and even a vet, along with restaurants and the popular gaming chain Dave & Buster’s evidence Levin’s interest in cultivating this new segment in commercial retail leasing. Non-traditional tenants meet the needs of today’s consumers – and even boost business for our traditional retailers. A combination that works quite well

Retail Trend Watchers See Monstrous Halloween Season Ahead

National Retail Federation Survey Points to a Record $8.4 Billion in Sales
Halloween, according to the annual survey of the National Retail Federation, holds lots of treats for retailers this year. Now the second highest-grossing retail holiday – behind Christmas – the 2016 spooky season will see 171 million consumers spending an individual average of $82.93 on Halloween merchandise (up from $74.34 last year) for an unprecedented total of $8.4 billion in sales. Good news, since Halloween is seen by many as the bellwether to the big holiday season just around the corner.

Multiple Categories Attract Shoppers’ Halloween Dollars
The Halloween shopping season is lengthy, stretching from late July through mid-October, and celebrants use that time to look for special promotions on a wide range of items: home decorations (indoor and outdoor), party goods and refreshments, costumes and accessories, greeting cards and, of course, candy. This year, a projected total of $3.1 billion will go to costumes, $2.4 billion to decorations, $2.5 billion to candy (Reese’s Peanut Butter Cups was 2015’s top seller) and $390 million to cards.

Costumes for Everyone from Boomers to Babies to the Family Dog
The NRF survey reports that 67 percent of consumers plan to don costumes during the Halloween season. Those from 18-34 will likely choose a Batman character for their revels, while those in the older demographic intend to stay with the classic witch or pirate. For costume and make-up inspiration, celebrants across the demographic spectrum say they will turn to social media – especially Pinterest.

In the kids’ category, the Princess has been dethroned after an 11-year reign by the many popular Super Heroes. Onesies, pajamas and buntings in a variety of themes are available for infants. And it appears that the retail trend of costumes for pets will continue. The top choice for pups continues to be a pumpkin or, appropriately, a hot dog.

Discount Stores Are the Top Destination, Pop-Ups Are Declining in Some Areas
As a leading retail real estate company, Levin always has an eye on location. Halloween shopping, according the NRF survey, runs counter to the overall trend toward online.

Online, in fact, is the least frequent source for Halloween purchases, well behind the major bricks-and-mortar categories. Discount stores lead the list at 47 percent, followed by Halloween costume/party stores (36 percent), grocery stores/supermarkets (26 percent) and department stores (23 percent). Online is projected to account for 22 percent of Halloween purchases.

In some areas of the country, like Northern New Jersey, pop-up Halloween shops occupying vacant space in strip malls and freestanding stores, seem to be on the wane. Observers credit this trend to the improving economy, which has led to fewer retail vacancies and more demand for existing space. With the number of potential tenants surging, retail leasing companies are reluctant to enter into short-term seasonal leases.

What’s Behind the Growing Popularity of Halloween?
Just a few decades ago, Halloween was a holiday for pranksters and vandals. How did it evolve into America’s second favorite holiday after Christmas, with two-thirds of the population celebrating at parades, parties, haunted houses, or maybe just passing out candy? Explanations abound.

Its freewheeling nature and chance for creative expression may be behind the turnaround. Some social observers say Halloween is so popular because it offers a chance to return briefly to the fun of childhood. Others say people are drawn to a celebration that doesn’t carry any special obligations. Whatever the reason or reasons, the Halloween holiday is one that retailers can celebrate – especially in 2016.