Fast Casual Eateries are Giving Retail Real Estate a Healthy Boost

Retail Trend: Scramble for Small Restaurant Space Creates a Landlord’s Market
Millennial diners want their quinoa bowls in a hurry and that’s good news for retail real estate companies. Fast casual restaurants – the popular source of healthy, affordable fare – are hungry for 1,500 to 3,000 square foot spaces in shopping venues nationwide. They’re competing with each other and with nail salons, spas and downsizing retailers who are eying the same sized spaces, creating a hot market for retail leasing. Nation’s Restaurant News reports that this competition has “driven lease rates to astounding levels” and created a “landlord’s market.” (Read more: http://www.eater.com/2016/4/28/11523694/restaurant-real-estate) And Jesse Tron, spokesperson for International Council of Shopping Centers calls the current climate “hyper-competitive.”

Tenants in this niche within our leased and managed portfolio include Saladworks, Good Mood Restaurant and Bubbakoo’s Burritos. As tenant representative we work with Dig Inn, the hip, highly popular Boston-based chain, currently on the move into new East Coast markets. So, naturally, we’re staying focused on what’s happening with fast casual restaurants.

Efficient and Appealing, Fast Casual Tops the Industry in Growth and Sales Volume
Led by the rise of Chipotle and Panera in the early 90’s, fast casual fused the speed and convenience of fast food with menus featuring healthy fare. It’s a winning combination, growing the category 550 percent since 1990 and driving the annual growth of fast casual sales to 11.4 percent in 2015, double the rate of any other restaurant segment. Fast casual, which now comprises 7.7 percent of the industry, is expected to lead restaurant sales through 2022, as Millennial diners take healthy dining further with demands for food that is locally raised, according to sustainable and humane practices.(Read more: https://www.washingtonpost.com/news/wonk/wp/2015/02/02/the-chipotle-effect-why-america-is-obsessed-with-fast-casual-food/?utm_term=.cd1fb581cc35)

Consumer appeal lies at the core of fast casual’s success, but it’s not the sole factor in this segment’s growth. Operationally, the concept is amazingly efficient. Sit-down diners are served in under 8 minutes and 50 percent of orders are take-out. This means a high volume of business can be transacted in a space about one-third the size of the average casual restaurant.

National Brand vs. Local Favorite: Which One Gets the Lease?
Faced with tenants vying for space, managers of retail real estate find themselves
weighing a number of factors when awarding a lease. Fitting out a restaurant space
even one of modest size – is more expensive than a retail store or an office. Ventilation, special kitchen requirements, and local regulations spike construction costs. A successful fast casual establishment, however, can offset that initial investment, not just in rent but in driving shopping center visits which, in turn, attract more demand for leases.

The choice is often between an independent or regional chain and a big national brand. Both bring positive buzz but savvy landlords, especially in the case of shopping centers or malls, tend to choose big names. Brand recognition, a record of success and deep pockets tend to win out. Emerging retail areas in urban neighborhoods, where there may be resistance to chains, may be the exception to this trend.

What’s Ahead: Fast Casual – A Role in Reviving the Mall
As brick-and-mortar stores shutter or scale back, food and entertainment may breathe new life into malls and shopping centers. Ron Ruggles of Nation’s Restaurant News sees a rosy future for retail venues that provide an inviting mix of entertainment, food and shopping to create a community experience that online can’t match. Fast casual, with its Millennial appeal, will have a big role to play in this new environment that replaces transactions with experiences.
(Read more:
http://www.themarketmogul.com/implications-rise-fast-casual-restaurants-real-estate.)

Pop-Ups are Bringing Excitement to Brick and Mortar Retailing

No Longer Just a Retail Trend, but a Way to Build Traffic and Brands
They began popping up in the bleak days of the last recession when shopping was dormant and retail vacancy rates reached 13 percent. Their focus was typically seasonal and their leases were temporary but they helped many a retail property manager survive the downturn. But the pop-ups didn’t fade away when the economy bounced back. In fact, these stop-gap stores have evolved into a $10 billion industry that some retail trend watchers say can help bricks and mortar merchants counter their online competition.

Pop-Up Retail: Custom Made for the Experience Economy
No longer just sellers of Halloween costumes or holiday decorations, pop-ups now provide innovative, sometimes daring, ways for retailers and brands to lure shoppers (especially experience-seeking Millennials) away from their screens. These temporary retail outposts sprout in urban centers, in malls, galleries and public spaces and in unexpected venues like barges, buses, even shipping containers. Known for pushing the envelope of retailing, they rely on the elements of novelty and surprise not associated with traditional stores. Read more: http://popupinsider.com/pop-up-phenomenon/

By now, virtually every brand category has at least dabbled in pop-up retailing. From big names like Nike, Reebok, Levi’s and Samsung to avant designers like Comme des Garcons to newcomers like Etsy artisans, looking to test the market, all have gone the pop-up route. Target has used the pop-up concept repeatedly for cause marketing and to promote its top product lines. eBay stepped out of the virtual world with Showhouse pop-ups decked out in furnishing and accessories available for online bids. Then there’s the Meow Mix Cat Cafe for cats and their humans, which set up temporary residence on Times Square. The creativity shows no sign of stopping.

Traditional department stores have joined the pop-up phenomenon too. Nordstrom turned the concept around with Pop-In @ Nordstrom, where select branches play host to new designers and product purveyors, some chosen because they are usually unavailable in the local market.

What Makes Pop-Up Retail So Hot? Fun and Exclusivity
With their ingenious presentations and unexpected venues, pop-ups offer something absent from the typical shopping experience: fun. When Pop-Up Republic, a specialty marketing and management company, conducted a recent survey, they found that 30 percent of pop-up customers were looking for fun in their shopping experience. Besides fun, pop-ups deliver a sense of exclusivity. Merchandise is often new to the market, making buyers the first to own it. And since the stores operate on a temporary basis, opportunities to acquire merchandise or experience the environment are time-limited –also contributing to a sense of exclusivity. Read more:

https://www.shopify.com/enterprise/91139206-why-pop-up-shops-are-the-future-of-physical-retail

Besides generating sales, pop-ups are attention magnets, capturing both news coverage and social media comments. Marketers are increasingly making them an integral component of their overall advertising initiatives.
More than a Retail Trend: Count on Pop-Ups to Keep Popping Up
Yes, those temporary tenants from a decade ago have morphed into a thriving sector of the retail industry. They are supported by specialty architects and designers like Lion’Esque Group, global consultants like Retail is Detail, and real estate firms like Storefront that match pop-up retailers with available space. And having put fun into shopping, they may be just the boost the old bricks and mortar world needs right now.

Investors in Retail Real Estate Are Seeking Expert Advice

By Joseph Lowry, SVP-Leasing and Acquisitions

Levin Expands Its Third-Party Services to Meet Growing Demand
A paradigm shift is underway in retail and in the retail real estate industry. One result is a surge in the demand for third-party services. In the last 28 months, our investment advisory practice took on over 21 new retail leasing and management assignments. We’re cheered by the strong economic momentum both nationally and regionally, but the flip side is that negotiations are getting tougher as investors look for that illusive ironclad deal. It’s a climate in which investors need guidance from leaders in commercial retail real estate. Here are some of our observations on the current state of this dynamic market, plus a quick look at how we’re assisting our investor clients.

Game Changers for Tenants: Online, Mergers and New Competitors
First, let’s look at the tenant side of retail real estate today. The evolution of online shopping undeniably has spurred changes for bricks-and-mortar stores. Merger activity is creating growth in scale for some retailers, but at the same time, consolidation is closing many locations. Preferred anchor categories, like supermarkets, are feeling the heat as discount and high-end grocers challenge their mid-level counterparts and drug, dollar and big-box department stores incorporate food into their inventory. Investors looking for shopping centers need to focus on the quality of every property they consider.

Top-Quality Retail Investment Property is a Scarce Commodity Today
Flight to quality is the hallmark of today’s commercial real estate market. Hundreds of millions of dollars in capital are chasing a limited supply of core institutional-grade properties. As a result, we’re working on more and more deals involving value-add or core-plus properties. And we’re finding that more buyers are willing to look at these asset classes than previously.

Six Factors That Must Be Analyzed Before Investing in a Commercial Property
Whether a property is institutional grade, value-add or core-plus, whether it’s broker-listed or an off-market deal, certain key factors need expert evaluation. These include an analysis of capital requirements, operating statements, rent rolls, debt levels, the condition of the property, and the state of the local market. Savvy investors are relying more and more on third-party providers who can bring a granular level of knowledge to the assessment process.

Retail real estate companies, like Levin, that maintain full in-house capabilities in leasing, accounting, property management, construction management and marketing are best positioned to assist investors in evaluating properties. Our years of hands-on experience in construction management is especially valuable in identifying physical conditions that represent future risk. Our regional focus is also of significant worth, providing strong brokerage connections and up-to-the-minute awareness of both listed – and unlisted – retail real estate investment opportunities.

Levin’s Support Extends Beyond Closing
After closing, many of our clients turn to us to develop and execute a successful operational strategy, assuring maximized property value throughout the entire investment cycle. In fact, a number of the assignments we’ve won in the past two years involve recently traded properties – for both new and repeat clients. These organizations look to us to establish, maintain and improve competitive positioning for their assets.

Today’s commercial retail real estate market holds tremendous opportunities for well-informed investors. Levin’s decades-long experience, encompassing every facet of the industry, makes us a valuable partner throughout the transaction phase and beyond.

Is the Department Store Dying or is this Evolution as Usual?

Is the Department Store Dying or is this Evolution as Usual?
Retail Real Estate Trend: Luxury Retailers Revive the Customer Experience


There are some questions in retail that never seem to go away. Among the most-asked concerns is the health of the traditional department store. Is this retail concept on life support? Have department stores lost their relevance? Are we in a post-department store era? Industry watchers, the media and even retailers themselves raise these queries regularly. As regional leaders in retail real estate, it’s an issue we keep a close eye on. Here are some of our recent observations.

In Retail, Change is the Name of the Game
Nothing in the retail industry is static. Since the first department stores opened in the mid-19th century, the concept has been evolving, driven by changes in economics, demographics, population migration and technology. Yes, in some cases the surviving department stores have lost their role as commercial anchors in America’s cities and even in some major malls. From the stresses on their middle class customer base to endless competition from smaller stores with unique product assortments, discounters, outlets, monobrands, club stores and online, these retailers face mega-challenges. Consider also that the ongoing cycle of discounting as a competitive tactic is eroding margins. No wonder we hear of store closings and stock downgrades and pronouncements of a post-department store era.

Can the survivors keep on surviving? It looks like they may have a fighting chance. Retailers will rise and fall as they always have. But the concept of a single space where shoppers can browse, discover and select from a wide range of items – and enjoy the experience – will likely go on. One caveat, however: if the retail icons don’t want to go out like the dinosaurs, they’ll need to continue evolving to meet customer needs.

The 21st-Century Department Store is Rising Thanks to Luxury Retailers
Department stores are writing the next chapter in their history. Many middle-market merchandisers are in transformation mode with heavy emphasis on technology. Most major players in this category, for example, have embraced omnichannel to meet the demands of tech-empowered shoppers and to counter online competition. A smoother shopping experience with electronic beacons and self-checkout counters is in the making. Smart mirrors are being featured in fitting rooms. And sales associates with tablets in hand can provide instant information about the entire inventory.

It’ll take more than tech wizardry though to reinvent the department store. High-end retailers may have found a winning strategy by restoring the joy of shopping. Neiman Marcus, Bergdorf, Barneys New York, Nordstrom and Saks Fifth Avenue are leading the charge in the U.S. Their goal, echoing the original concept of the department store, is to create a unique customer experience that goes beyond transacting. Listen to their executives and you’ll hear phrases like retail theatre and creative merchandising. To deliver those, they’re reimagining interior space with maximum aesthetic appeal, curating inventory, introducing new lines and designers, incorporating restaurants and wine bars into the retail environment, using pop-ups, and staging exclusive events. They’re exploring the concept of customizing each branch store with touches of local style. They’re doing things their online competition can’t. And they’re not neglecting technology. They’ve mastered omnichannel and moved into data mining to gain precise insights into the habits and preferences of their key customers.

Retail Real Estate Trend? Joy of Shopping at Middle-Market Department Stores
Middle-market retailers can’t (and probably shouldn’t) try to mirror the tactics of the luxury department stores, but there are signs they are scaling the joy of shopping concept to fit their markets. Ideas on the table include right-sizing space and upgrading interiors, improving visual merchandising, curating inventory to include exclusive brands, incorporating food and beverage service and upgrading staff. Localization of branches and unique in-store events, sometimes inspired by a chain’s flagship venues, are emerging. (Read more about this trend here: http://www.businessoffashion.com/articles/intelligence/whats-next-for-the-american-department-store.)

Back to the Roots of Successful Retailing
Is there a silver bullet here? Department stores may finally be on track to reclaiming relevance and appeal. They seem to be taking the advice of Macy’s Margaret Gitchell, one of retail’s first female executives. Her mantra was “never forget to astonish the customer.” That worked in the19th century and it may just be the key to surviving in the 21st.

Levin Retail Sentiment Survey Reflects Positive Outlook on 2016

Lower Gas Prices, Job Growth, and the Housing Market Will Bolster Sales this Year

Store managers in our 95-property, 13 million-square-foot portfolio told us they feel good about the year ahead during our annual January Retail Sentiment Survey. This is particularly good news considering that the poll was conducted at the outset of the current stock market volatility.

In fact, an impressive 68.1 percent of the survey respondents said they are optimistic about 2016. “We really are at a transitional time for retail, with factors like positive job growth, low gas pricing and the housing market uptick working in the industry’s favor,” noted Levin President Matthew K. Harding.

Mixed with the good news was some uncertainty about the specifics of 2016’s performance, with 20.5 percent of participants undecided about what exactly to expect. “The unseasonably warm fall and early winter, and what has become a longer –and therefore more diluted – holiday shopping season impacted sales for some retailers,” Harding said. “As such, it makes sense that our tenants are expressing some remaining uncertainty.”

Our survey mirrors leading industry sources, who are also predicting a respectable 2016 performance. Kiplinger anticipates retail will grow approximately 4 percent. Trading Economics expects 3.6 percent growth.

2015 Sales Showed Modest Upward Momentum Nationally

The U.S. Department of Commerce announced in January that 2015 retail sales were up only 2.1 from 2014 (for context, 2014 sales were up 3.9 percent over 2013). And the National Retail Federation reported moderate 2015 holiday season sales growth of 3.0 percent, down from its forecasted growth of 3.7 percent. Our survey, as well, showed modest momentum in both year-over-year and holiday sales.

Nearly 53.0 percent of survey respondents reported 2015 sales at the same level or higher than 2014. This figure is up from 51.7 percent and 49.4 percent reporting same/higher sales in our January 2015 and 2014 polls, respectively.

The majority of our respondents also reported a generally positive 2015 holiday shopping season, with 58.0 percent reporting sales at the same level or higher than 2014. And 57.0 percent reported that shopper traffic at the same or higher level than in the 2014 holiday season. While these figures are slightly lower than last year’s poll (63.6 percent reported same/higher sales; 60.0 percent reported same/higher traffic), they still outpace the prior year (50.6 percent reported same/higher sales; 48.2 reported same/higher traffic).

A Retail Real Estate Trend: Online and Bricks-and-Mortar Converging

Our survey and other industry reports, like RetailNext’s Retail Performance Pulse, reflected the strength of bricks-and-mortar retail during the holidays. In fact, the International Council of Shopping Centers’ Holiday Consumer Purchasing Trends Study revealed that 91 percent of consumers shopped in physical stores during the 2015 season. ICSC also reported that 32 percent of shoppers made purchases online and picked them up in physical stores; 76 percent bought additional items in the same or an adjacent store.

“We are witnessing a growing synergy between in-store and online purchasing, and its benefits for bricks-and-mortar,” Harding pointed out. “Increasing demand for this type of technology-driven, omni-channel retailing will play a big role in 2016. Bricks-and-mortar and online are converging. And it appears our tenants are gearing up accordingly.”

Looking Forward: More Than a Retail Trend, Tech is Driving Results

More than half (50.9 percent) of our survey respondents plan to add or enhance their tech-based marketing efforts in 2016 with mobile apps, social media, email and text messaging.

Approximately half indicated their company has changed its business model in response to the growth of e-commerce. The most popular adaptations include enhanced in-store services and incentives, added in-store pickup and returns option for online purchases, and generally increased collaboration between online and bricks-and-mortar. Among the retailers that have revised their business models, 40.6 percent reported a positive impact on sales.

Crystal Ball Time: What will 2016 Hold for Retail? New Stores and Right-Sizing

What’s ahead? “It remains to be seen whether the recent stock market shake-up will have a long-term impact,” Harding concluded. “We all hope to see a fairly rapid correction. Should that take place, the retail industry is likely to maintain growth momentum well into 2016.”

In some cases, this means new stores – good news for retail real estate companies like ours. More than one quarter (28.4 percent) of the store managers in our survey indicated their company planned additional locations this year. “We anticipate that smaller footprints will be the norm as retailers continue to right-size and make shifts to incorporate e-commerce into their operations,” Harding noted.

We also asked retailers if they observed shifts in the hiring climate as the unemployment rate continues falling. Their feedback indicates about 44.0 percent are noticing changes, most prominently in the areas of applications by fewer qualified job candidates and increased demand for higher starting salaries.

“U.S. unemployment inched down to 5.0 percent last month, and if this trend continues it will likely have a growing impact on retail hiring,” Harding pointed out. “This is an area we will be focusing on more closely in upcoming surveys.”

Levin’s next Retail Sentiment Survey will be conducted in June, reporting mid-year progress and exploring technology issues.

A Facelift Can Put Bricks And Mortars Ahead of The Game

Retailers May Be Neglecting Their Strongest Competitive Advantage

Digital technology has transformed our industry – some might say disrupted it – along with just about everything else in contemporary life. Retailers, over the last few years, have risen to the challenge of their online competitors with major investments in omnichannel. But have all those dollars poured into online come at the expense of the retailer’s biggest asset: the bricks-and-mortar store? This provocative question was recently raised by Antony Karabus, CEO of Hilco Retail Consulting, in a recent article in Women’s Wear Daily. He gave us cause for some thought.

Investing in Bricks: Is a Retail Real Estate Trend Emerging?

Karabus maintains that bricks-and-mortar retailers “consistently underestimate the enormous advantage they have relative to their ecommerce counterparts, in particular their physical brand assets.” A bricks-and-mortar store, he goes on to say, satisfies the consumer’s innate desire to interact with merchandise in an inviting environment. Yet, according to a survey of the CEOs and CFOs of top retailers conducted by Hilco, only 20 percent are investing capital in their stores. Forty percent of the stores in Hilco’s study, in fact, had not been remodeled in a decade.

The vast majority of retail sales still occur in stores rather than online. The most recent statistics from the U.S. Commerce Department show online sales accounting for 6.8 percent of total third-quarter retail sales. Online is growing at a steady pace, but Forrester Research projects that by 2018, it will still represent only 11 percent of total annual sales. Still, leading retailers remain fixated on tech – perhaps at the expense of their physical brand, which is the chief driver of revenue.

An Experience Technology Can’t Match…Yet

Steve Barr, U.S. Retail and Consumer Leader at PricewaterhouseCoopers, echoes Karabus’ views on the overlooked value of bricks. “There are reasons people are still going to the store – it’s accessible, people can see and feel the product, try on merchandise, see what a room set looks like. It’s a very visual experience that can’t be replicated through even the best online tools,” he told Retail Dive earlier this year. He added this caveat: “Retailers are going to need to adapt the physical store to stay relevant and compete with online retailers.”

Levin’s President Matthew Harding agrees that while a strong online presence is vital, retailers can’t afford to ignore their physical stores. “As a leading retail real estate company, we’re naturally concerned about the physical appearances of the tenants in the centers we manage. The look of a store is a valid concern for any retailer. Many of ours are doing an outstanding job. A good example is ShopRite. They’ve created high-quality environments for grocery buyers. Pier 1 Imports is another good example. I’ve seen some great interior and exterior remodeling of their stores. They’re driving more traffic because of their fresh, new look. Shoppers are drawn to novelty.”

Retailers Who Find the Right Balance Will Own the Future

Bricks and clicks need to be brought into balance, according to Karabus, who insists that success will come from serving customers “consistently at all touch points (online and in-store) however and whenever they want to interact with a retailer.” Bring stores up to meet the expectation of today’s savvy consumers, he urges. Merchants who do so will reap dividends. “The prize,” he predicts, “will be huge when retailers find the right balance of capital spending.”

When Going Backward is Going Forward

melissa

Clicks-to-Mortar Continues as a Retail Real Estate Trend

When Bonobos’ founder Andy Dunn launched his online menswear business in 2007, he pronounced bricks-and-mortar stores officially dead. Within five years of predicting that retail real estate trend, Bonobos was offline as well as online with a unique take on bricks-and-mortar – Guideshops – plus branded boutiques in select Nordstrom stores. Other big e-commerce names like Warby Parker, Piperlime, Birchbox, Proper Cloth and even Etsy and eBay are now dabbling in the concept of offline venues.

Migration to Bricks-and-Mortar Sounds Like Good News for Retail Real Estate

The Los Angeles Times recently reported on the debuts of on-the-ground boutiques by some of the hippest names in online-only retailing. Among these are Nasty Gal, now in the Southland Mall in Hayward, Calif., and JustFab in the Glendale Galleria. Former exclusive onliners say the major drivers of this “reverse evolution” are their need to build brand awareness and the shopper’s need for a tactile impression of merchandise, something that can’t be duplicated online (at least not yet). Shopping is a social experience, especially among the coveted millennial demographic, they acknowledge, and a physical venue provides just that. And shoppers want to try before they buy –something that even the onliner’s promise of “free shipping both ways” can’t seem to overcome.

Clicks-to-bricks also delivers a positive financial impact. Dunn of Bonobos says that he cut his online marketing costs in half through his Guideshops and that the average in-store transaction ($360) was close to double that of Bonobos’ average online sale.

“Reverse Evolution” Results in a New Kind of Retail Real Estate Venue

Bricks-and-mortar descendants of e-commerce sites are anything but traditional stores and more hybrids of offline and online. This retail real estate trend is producing smaller “showroom” style shops (sometimes as small as 800 sq. ft.) with shallow, sample-based inventory. In-store purchases are often made via the retailer’s website to be delivered within 24 hours (for the almost-instant gratification consumers crave). Both sales associates and shoppers in these hybrids have access to multiple computers to browse additional options and features and place orders. Typically, the showroom stores closely reflect the branding of the retailer’s website – The Gap’s Piperlime, a fashion site featured on “Project Runway,” decks out its flagship SoHo showroom in the color palette and graphics of its website.

What’s Next for the Click-to-Mortar Retail Real Estate Trend?

Traditional retailers continue to strive for online success. E-commerce pioneers seek a footprint in the real world. What’s next? Will we see more online retailers launching not only in trendy neighborhoods like SoHo and LaBrea but in malls as well? One thing we can count on, it’s not going to be business as usual. What are your observations about this trend? Please share them with us below.

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About Melissa Sievwright

Melissa joined Levin’s marketing department in 2010 and was promoted three times in less than three years to her current management position as Assistant Vice President of Marketing. With a strong background in graphic design and marketing, she heads the company’s corporate branding efforts, implements promotional campaigns for select client properties, and supports the firm’s leasing team in marketing vacancies within the company’s shopping center portfolio. Her current “big picture” goal centers on helping Levin leverage opportunities resulting from the rapid evolution of online marketing and the increasing technological savvy of the commercial real estate community – to project an image that marries the firm’s rich traditions with its modern approach to doing business.