Shopping Centers: Not What They Used to Be (But That’s Not a Bad Thing)

Tale of Survival and Adaptation Unfolding for Retail Tenants and Properties

Your neighborhood shopping center isn’t what it used to be. While some say the Great Recession and the e-commerce phenomenon impacted the bricks-and-mortar landscape in a negative way, in reality, we are seeing an interesting – and encouraging – tale of endurance and progress, illustrated by the ongoing transformation of the tenant mixes of retail real estate companies.

The changes are not singular – or linear. These retail real estate trends involve new types of retail tenants and the evolution of those in our industry adapting to new settings shaped by socio-economic shifts and public policy. The bottom line: fresh opportunities are emerging in an industry where change remains one of the only sure things.

Non-Traditional is the New Normal
Not long ago, the presence of a gym at a shopping center was unusual. However, when the recession hit and many stores went dark, retail real estate companies found fitness tenants eager to step into the vacancies. At first, co-tenants were concerned about their new neighbors monopolizing parking or watering down the property’s range of products for sale. But soon, they recognized that the gym brought increased traffic their way.

Today, fitness tenants are shopping center staples, positioned as first-tier targets for retail leasing professionals. And they come in a range of price points and sizes, from Crunch Fitness and 24-hour Fitness to mid-size Retro Fitness to boutiques like Orangetheory Fitness.

The rise of the gym at retail properties was a precursor to a larger retail real estate trend. Today, many shopping centers are transitioning from places where consumers buy goods and services to places where they enjoy recreational opportunities and engage in their community.

To this end, restaurants – especially fast-casual concepts like Panera Bread and Chipotle – are comprising a larger percentage of tenant mix than in the past. This is by design, as landlords work to reintroduce shopping as a recreational pastime. Entertainment tenants are leasing spaces of all sizes, from big-box anchors like Dave & Busters to small paint-and-sip boutiques. Their success speaks to the viability of “retailtainment.”

That Which Does Not Bend May Break
At the same time, traditional bricks-and-mortar retailers – such as grocery and apparel, to name just two – remain alive and well. However they, too, look a bit different.

Following the recent A&P bankruptcy and liquidation, a growing diversification in grocery tenants has taken place in the Northeast. After several years with only a handful of expanding operators, we are seeing significant growth among chains including ShopRite, Acme, Trader Joe’s, and other specialty and ethnic grocers. Additionally, many non-grocery retailers like dollar stores and pharmacies are expanding their food inventories (although lease clauses may limit their amount of grocery-dedicated space).

In the apparel sector, a number of mid-price retailers, such as Mandee and Fashion Bug, have gone out of business over the years. However, bigger national department store players, like Nordstrom and Saks, are generating healthy sales from off-price concepts like Rack and Backstage. Discount brands such as Kohl’s, T.J.Maxx, SteinMart and Ross also remain favorites among today’s cost-conscious consumers.

Yet there’s no denying that e-commerce has made a significant impact on traditional bricks-and-mortar stores. The conversation has shifted, however, from “survival” to “opportunity,” and physical-store retailers are rethinking their approaches. They are capitalizing on opportunities to meet changing consumer needs and desires by giving customers a good reason to visit their stores.

The trends go beyond the grocery and apparel categories. Retailers across a wide range of specialties are finding new ways to engage shoppers. In Levin Management Corporation’s most recent tenant survey, nearly 40 percent of participants indicated they have adapted their business model in response to e-commerce growth. Among those respondents, many are adding in-store services and incentives, incorporating in-store pickup and return options for purchases made online, and increasing coordination with their online operations. Others are altering store inventory, introducing experience draws and/or changing their store prototypes.

Now Batting: The Healthcare Revolution
In addition to the shopping habits of Millennials and Baby Boomers, one significant driver in shifting tenant mixes ties directly to public policy. Changing healthcare laws are incentivizing people to choose walk-in clinics over trips to the ER. At the same time, hospital systems are decreasing operating costs and improving customer service by establishing outpatient services in non-medical satellite locations. The resulting boost in space demand has come at a time when retail supply has been plentiful, giving rise to a new breed of non-traditional tenants.

Urgent-care, imaging centers, doctor’s offices and dentistry chains in retail settings have something in common with their non-traditional predecessor, the fitness tenant. A shopping center-based trip to the doctor, like a workout at a gym, evolves into a visit to the grocery store or a lunch at a nearby restaurant. In this regard, healthcare tenants are queued up to become the next “normal” retail space users.

The bottom line is that shopping center tenant mixes and tenants themselves, have always evolved to accommodate social trends. The retail industry will continue to re-invent itself to survive – and thrive. And so will retail real estate.

After a Strong 2016, Our Retail Tenant’s Outlook is Optimistic

Annual LMC Outlook Survey Reveals Growth Trend, Continued Evolution
Retailers in our 95-property, 13 million-square-foot shopping center portfolio are feeling good about the future. In fact, three quarters (74.5 percent) of respondents in our annual Retail Sentiment Outlook Survey of store managers are optimistic about their anticipated 2017 performance – the highest percentage in the January poll’s six-year history. As a regional leader in retail real estate, this is the kind of news we love to hear.

Survey Respondents Report Record Sales Performance in 2016; Bricks and Mortar Stores Continued to Attract Shoppers
According to our President Matthew K. Harding, the percentage of respondents reporting 2016 sales at the same or higher level (68.8 percent) was the highest in Outlook survey history. Our finding reflects a positive year for retail nationwide. According to the U.S. Department of Commerce, 2016 retail sales rose 3.3 percent over 2015; for context, 2015 retail sales were up 2.1 percent from 2014.

The holiday season yielded a record performance, too, with survey respondents reporting sales and shopper traffic at the same or higher level than last year. These were the strongest in survey history at 75.6 and 74.4, respectively. “Industry experts agree that the recent holiday season was good for retail, yet some have indicated e-commerce was the real winner over bricks and mortar,” Harding said. “From a ground-level perspective we are seeing a different story – one illustrating the ongoing relevance of physical stores in our portfolio, which is comprised mostly of open-air shopping centers.”

Supporting our findings, the International Council of Shopping Centers (ICSC) in its Post-Holiday Shopping Survey found consumers spent an average of $711 on gifts and seasonal items during the holidays – a 16 percent increase over 2015’s post-holiday survey results. Further, ICSC reported 91 percent of holiday shoppers spent at bricks-and-mortar locations.

Expansion Plans Are Heating Up:  A 2017 Retail Trend to Watch
When we asked survey participants about their companies’ expansion plans for 2017, more than one-third (35.1 percent) indicated their brand plans to open additional stores.

“Again, our findings may seem to counter current headlines reporting ongoing store closings by major retailers,” Harding said. “But in the 65 years we’ve been leasing and managing retail properties we have witnessed the ongoing transformation of retail. Ultimately, concepts come and go, creating opportunities for new and expanding players. Today is no different, and our tenants are proving this point.”

Qualified Job Candidates: Retail Is Facing a Growing Scarcity
The decline in unemployment and its impact on retail hiring also was addressed in the Outlook Survey. Only about one-quarter (23.6 percent) of respondents have seen changes in the hiring climate related to the tightening jobs market. Of that group, more than half (51.7 percent) indicated they are seeing fewer applications from qualified job candidates, and nearly half (46.6 percent) said they are experiencing demand for higher starting salaries.

Tenant Business Models Are Adapting to Impact of E-commerce
The e-commerce phenomenon – and its impact on bricks-and-mortar – has remained top-of-mind for us. As leaders in retail real estate we are continuing to gauge how our tenants are taking competitive action. In the 2017 Outlook Survey, we asked our tenants how they have adapted their business models in response to e-commerce’s growth.

Marking a notable jump from the last two times the question was asked, 55.2 percent of survey participants indicated they have adapted in some way. This compares to 38.2 percent of respondents in the 2016 Mid-Year Survey and 37.3 percent at mid-year 2015. Among that group, our retail tenants have:

  • Added in-store services and/or incentives (50.9 percent).
  • Added in-store pickup and returns options for purchases made online (37.9 percent).
  • Increased coordination between online and bricks-and-mortar operations (30.2 percent).
  • Added “experience” draws such as demonstrations, classes, performances or other in-store events (28.4 percent).
  • Altered store inventory, such as having fewer in-stock SKUs or larger quantities of popular items (25.0 percent).
  • Altered store prototype, such as reducing store size or increasing focus on showrooming (17.2 percent).

In turn, 57.5 percent of the respondents who have adapted in response to e-commerce say they have seen a benefit in terms of sales and/or in-store traffic. That percentage compares to 43.0 percent at mid-year 2016 and 52.1 percent at mid-year 2015.

“In our last two mid-year surveys, about one-third of tenants (32.9 percent and 30.9 percent) were unsure of whether their efforts were making a positive impact,” said Melissa Sievwright, vice president of marketing. “The number shrank to less than a quarter (24.4 percent) in the 2017 Outlook Survey, indicating that tenants are beginning to see more measurable results.

“This is very good news in an environment requiring retailers to continually reinvent themselves,” she added. “We anticipate continued changes as our tenants strive to establish the best mix of services and incentives, and elevate and personalize the shopping experience to draw customers into their stores.”

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 babytv.com 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

Study Finds That the Vast Majority of Americans Shop Online

But…Bricks-and-Mortar Stores Are Still Dominant by a Wide Margin
Online shopping is no longer a trend. It’s now a way of life in America, with 96 percent of the respondents in a recent study saying they shop online. All demographic groups – from Millennials to Seniors – are turning to their various screens for making a purchase. And, they’re loving the experience, ranking it ahead of smartphone GPS and streaming media as “something they can’t live without.” Big Commerce, an e-commerce platform, and Kelton Global, research consultants, discovered these facts and more in a March 2016 study of 1,000 shoppers. Their findings have been reported by Chain Store Age (see article) and other retail industry media.

The massive report is also well worth a read for leaders in retail real estate. But before you dive into all the findings, check out these ten highlights.

1.Good News for Retail Real Estate
Shoppers love online, but 64 percent of those surveyed still buy in bricks-and-mortars. This includes Millennials – 44 percent said they shop in stores. Women make more shopping trips than men. Men buy more online.

2.More Good News for Retail Real Estate
Survey respondents said their least favorite aspects of online shopping were: inability to touch and feel merchandise, shipping charges, exchanges, and waiting for delivery.

3.Brick-and-Mortar Websites are Online Shopping Hubs
Twenty-five percent of respondents in the Big Commerce study had shopped at the website of a brick-and-mortar store.

 4.Favorite Features of Online Shopping
No surprises here. Shoppers choose online for convenience and speed of sale.

 5.Most Online Dollars Go to E-Commerce Marketplaces
Big Commerce’s respondents spent an average of $488 last year on sites like Amazon and eBay. Their second highest spending level was on the sites of major online/offline brands ($409).

6.What Do Online Shoppers Want on Websites?
Online shoppers want images, video demonstrations, customer reviews, and product comparison – all the things that bring an item to life.

 7.How Do Shoppers Choose an E-Commerce Site?
Price is the main driver (87 percent), followed closely by free shipping and speed (80 percent).

8.Shipping Costs are a Major Stumbling Block to Online Sales
Online shoppers are super-resistant to paying for shipping. Two-thirds of those in the Big Commerce study said they had abandoned their shopping carts when they saw the shipping charges.

9.Social Commerce is on the Rise

Thirty percent of the respondents said they were open to buying through a social media network. More than half the Millennials were ready to shop on social. Facebook and Pinterest were the social platforms of choice.

10.Online Shopping is Everywhere and Round the Clock
In retail stores, in the car, in the office – 24/7 – people are shopping online. Forty-three percent shop in bed and 20 percent shop while in the bathroom. Ten percent admit to shopping under the influence of alcohol (13 percent of them Millennials and 17 percent Gen-Xers). Maybe this is why 42 percent of Big Commerce’s respondents admitted regretting an online purchase, and 21 percent said they had bought something online “by accident.”

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.

Re-Inventing Retail: Think Customer Experience First

In Retail Real Estate, Concept Stores and Non-Stores are the Next Wave
By Melissa Sievwright – VP, Marketing

The re-invention of retail is underway, driven by tech advances and new shopper preferences. The impact of mobile and online are obvious. Less quantifiable is the attitudinal shift from acquisition to experience among consumers. Millennials and boomers alike are opting to invest in experiences over things. Think travel, live performance, hobbies, events, fitness – instead of fashion, jewelry, footwear or furniture. (One exception? Tech products.)

What is a retailer to do? As regional leaders in retail real estate, we are already seeing changes in store design and service. Even more intriguing is the breakthrough ideas put into play by some major retail re-inventors. They are melding lifestyle with shopping and giving consumers a reason to step into the store. We have rounded up some of the big ones here.

Big Box Retailers Get Out of the Box
Staples is the latest story. With traffic declining in its mammoth stores (averaging 20,000 square feet), this major name in office supplies and services has just launched communal workspaces carved out of three suburban Boston stores. Managed by Staples’ partner Workbar, the 2,500- to 3,000-square-foot areas offer conference rooms, work stations, and private phone rooms, Wi-Fi and beverage service, plus immediate access to all the office supplies members need to buy. Read more here.

And then there’s Target’s Open House, located beneath its store in San Francisco’s Metreon Center. The 3,500-square-foot space features a walk-through house of acrylic panels filled with interconnected products from the Internet of Things. It is authentic “retail-tainment” and a dazzling demonstration of how connected devices (all available upstairs at Target) work in sync to solve everyday problems in home management and maintenance. Open House also hosts meetings, events and product launches. Take a peek at what’s happening in this press release.

The New Retail: All About Interactivity
When it comes to physically engaging the shopper, Reebok’s FitHub is the champ. “Gear, Classes and Camaraderie” is the brand promise, and Reebok is delivering in an over-the-top in every way style. Go inside the company’s latest Manhattan mega-store and see how far interactivity can go.

The Non-Store Could Be the New Store
Samsung 837, “where tech and culture collide,” is the electronic giant’s 40,000-square-foot tech playground in the heart of New York City’s Meatpacking district. Nothing is for sale at this retail destination. Step inside and fall in love with the latest Samsung products – which you can then buy online. Live music, a VR tunnel, cafe, workshop and connections with events like the Tribeca Film Festival draw crowds. People do not need another store, says Zach Overton, VP and GM of the space. “They need a place where they can have a deep dive into the brand.” Take a deep dive with this video shot at Samsung 837.

Bonobos Takes Showrooming to a New Level
The hot name in menswear built its brand on the perfect fit. Its 20 Guideshops bolster that promise by focusing solely on customer service. There’s nothing to buy at Guideshop. Rather, visitors find samples of every piece of inventory in all sizes, colors and fabrics. Make an appointment with a Bonobos associate (aka a ninja) and get the perfect item – which is then ordered online for next-day delivery. For this retailer, with no inventory management at the store-level and no stockroom to manage, what’s not to like? Read more here.

Retailers Don’t Need Big Budgets to Be Re-inventors

Part 2 of this blog will share tips for smaller players who want to join this retail trend and become re-inventors, too.

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.”

Hot Retail Real Estate Market Spawns Construction Boom

Flight to Quality is Seen in Major Retail Corridors in the Northeast
Heading into the heart of 2015, the Northeast retail real estate market looks robust. Tenants wanting to establish or expand their footprint here have turned aggressive in leasing, absorbing much of the prime retail space. What remains is commanding higher prices.

The result? An emerging supply/demand imbalance for Class A space that is beginning to create some barriers to entry for retailers, while spurring expansion of existing shopping center properties. For these new projects, flight-to-quality is a common theme, with developers focused on opportunities in established retail corridors, especially those offering the strength and stability of a grocery anchor.

Levin’s Construction Management Services See Strong Demand 

Examples of this retail real estate trend can be found in Levin’s own leasing and management portfolio. Our construction management team recently began an expansion of St. Georges Crossing, a fully leased, 317,000-square-foot property in Woodbridge, N.J. After arranging a long-term lease with T.J.Maxx, we broke ground on a 23,000-square-foot building for the fashion retailer, which will occupy a newly acquired parcel of adjacent land. Similarly, at Mid-Town Plaza in Middletown, Pa., we orchestrated the purchase of an adjacent parcel to accommodate the construction of a 7,380-square-foot AutoZone.

Additionally, at the 80,000-square-foot Clifton Plaza in Clifton, N.J., we leased and delivered a 15,000-square-foot, newly constructed building for Blink Fitness. And in Flemington, N.J., we orchestrated a lease with HomeGoods at The Shoppes at Flemington and then oversaw approvals, contractor sourcing and construction of a 22,000-square-foot, free-standing addition.

Flight to Quality Drives Expansion Projects in Key New Jersey Retail Areas

Reflecting the flight-to-quality play, Stafford Park, a thriving, 650,000-square-foot shopping center in Manahawkin, N.J., has been approved for an additional 195,000 square feet – including several prime pad sites. The retail portion of Stafford Park includes anchor tenants Costco and Target, plus PetSmart, Dick’s Sporting Goods, Best Buy, Ulta and Olive Garden.

In Southern New Jersey’s Burlington County, the ShopRite-anchored Bordentown Plaza provides a great example of shopping center redevelopment driven by the need for competitive positioning in an established retail corridor. ShopRite is slated for a complete renovation and expansion, and the entire, 179,000-square-foot center itself will be updated and repositioned. As the property’s retail leasing advisors, Levin is marketing more than 100,000 square feet of existing space, plus proposed pad sites.

Outlook for Retail Real Estate in the Northeast: Increased Stability

The success of recently completed ground-up and renovation projects are bright spots in our region. And while we will continue to see quality inventory added to meet growing demand, the maturity of the market, combined with lengthy approval and building processes, will keep expansion in check. In other words, oversupply should not be a concern anytime in the near future. We expect the market’s stability to build steadily over the next couple of years. A continued low interest rate environment bodes well for the positive construction and investment activity we are seeing.

As always, well-located shopping centers with a strong tenant mix and curb appeal continue to draw retailers, consumers and investors. At the same time, we see some strengthening in the demand for properties in secondary positions. Landlords are becoming more creative in their approach to leasing in these spaces and are working hard to establish their properties as attractive alternatives to the scarce Class A’s.

The outlook for Northeast retail real estate remains nothing but positive through the balance of 2015 and beyond. Demand from national, local and franchise companies in active categories – including grocers, affordable fitness chains, off-price retailers and fast-casual restaurants, among others – will continue to drive vacancies down and rental rates up. And the level of development activity – both for new projects and expansions/renovations – speaks to growing confidence in the future of the retail sector in our area.

RECon 2015 Takeaway: Retail Real Estate is on the Rise Again

Keen Appetites for Value-Added Investment Set the Tone for Annual Las Vegas Gathering

With 35,000-plus attendees thronging last months ICSC RECon event in Las Vegas, it seems safe to say that commercial retail real estate is roaring back from the Great Recession in a big way. Its not just the number of attendees that impressed us but the amount of new blood among them and the intense deal-making mood that pervaded the convention center.

Solid Retail Fundamentals Are Driving the Market on Multiple Levels

Yes, weve seen more attendees at past RECons (the record is 50,000), but weve never seen one of these shows with more capital aggressively chasing deals. Frothy would be a good word to describe the acquisition-oriented activity. The big institutional investors, many of whom we advise, were in a bullish state of mind and on the hunt for high quality, core retail assets as well as core plus and value-added retail properties. In addition to dominant grocery anchored centers, power centers and properties that feature category leading brands and credit tenants are in strong demand.

Ground up development was also drawing its own healthy slice of investor attention. For the first time since the slump began, there is a pipeline of significant development money, which is good news for the construction management team at Levin. Behind all this investor interest is the growing strength of retail fundamentals, particularly in the top-tier markets, which are typically the under retailed, high barrier to entry markets as well as the growth markets.

RECon, As Usual, Reveals Retail Real Estate Trends: Mixed Use, Hot Markets, New Retail restaurant and Entertainment Concepts and Smaller Footprints for Big Box Tenants

Trend watchers always like to keep a sharp eye on gatherings like RECon, scanning the scene for the next big thing. The 2015 event yielded some hints about new industry directions, most of which have been evolving for some time. The biggest driver of change in retail; online shopping, is now a firmly entrenched consumer habit and retailers and retail real estate owners and managers continue to struggle to pry people away from their screens and back into bricks-and-mortar venues. So we see both new retail development and renovations to existing shopping centers that include new restaurant and entertainment concepts, cinemas, and event spaces joining the line-up of traditional retail stores. Mixed-use development is also a focus. Experimentation is the name of the game here, as developers search for the right mix of retail, restaurants, entertainment, residential and/or office uses, and tackle the subtle nuances of pedestrian traffic patterns and tenant positioning. Success in mix use, many are finding, depends on the dynamics of the individual market and thats not something that lends itself to a template or formula.

The retail real estate sector is nothing if not dynamic, and change tends to involve responses to new trends. Wal-Mart and Target, for example, are adjusting to unique environments, particularly the dense urban markets as well as to continued competition from the extreme discount grocers and dollar stores with smaller footprints and new concepts. Expect to see the continued rollout of The Wal-Mart Express convenience stores and The Neighborhood Markets, with emphasis on groceries.

All in all, RECon 2015 was a testament to the resiliency of our industry and a cause for optimism. We are on a roll!

Curation: The Future of Retail (And The Past)

A Trend Goes from Bricks to Clicks Then Back to Bricks Again

A few years ago, The Motley Fool, the online stock advisor, proclaimed that “the future of retail is curation.” True, but it’s also its past. The pioneering department stores launched in the late 19th century were all about curation – selecting market-oriented merchandise and organizing mammoth inventories into designated areas (departments) where shoppers could easily browse items that matched their budgets and tastes. Departments were the retail real estate trend of the day, enhancing the shopping experience by organizing the goods formerly found in multiple stores under one roof and presenting them in a shopper-friendly manner. On the opening day of its Herald Square store, Macy’s was not unlike today’s Amazon, featuring a slogan that was all about size – “A Place Where Almost Anything Can Be Bought.”

Online Merchants: New Masters of the Curation Universe

With the largest selection of goods in the world today, Amazon and its merchant partners continue to refine curation online with algorithms that deliver systematized suggestions based on individual consumption patterns. These formulas guide buyers through a staggering selection of items. The goal is to “drive consumer choices and offer new ways to spend money,” says Netflix, another master of online curation. Netflix, along with Zappos (an Amazon company), Wayfair, and furniture.com are among the leaders of the online pack, mining masses of data and matching it with tailored choices to smooth the online shopping experience.

It’s not all algorithms though. Beyond mathematical formulas, online is also the home of celebrity tastemakers and influencers who lend their star quality to collections they appear to have curated on sites like ShoeDazzle and Overstock.com – all chosen to fit their fans’ shopping profiles. And then there’s social commerce, which brings social media into the shopping mix. Glance, a product of Zappos Labs, is a curated fashion platform that lets shoppers “heart” their favorites and share the word about their buys with their Pinterest, Facebook and Twitter communities. Niche online marketers, like Nasty Gal, which evolved from an eBay store, are natural curators with merchandise so sharply targeted that tech may not even be needed to serve up a selection.

Keeping up with the Curators

So what’s a bricks-and-mortar retailer to do when facing celebrity-curated collections and ever-improving product recommendation technologies? Just as the bricks-and-mortars have achieved success online, they’re also rising to the challenge of 21st-century curation. They’re turning sales staff into in-person curators. Well-trained and well-equipped with tablets that connect to a digitized inventory and supply chain, associates on the selling floor are turning browsers into buyers. Employees at Leica, a camera retailer in Manhattan, use a mobile-inventory-centric retail system to present shoppers with products that match their needs. Leica’s system also allows sales staff to do check outs from their iPads (a la the Apple Stores) – for a bricks-and-mortar version of one-click purchasing. That’s a retail real estate trend worth watching.

Struggling Sears is approaching curation in a more traditional but still creative way.

Three pilot stores are hosting “Connected Solutions” – an online and in-store collection that demonstrates how connected electronic smart goods can make for better living. Sear’s in-store sales centers feature a full range of branded devices in the fitness, home, automotive, and mobile categories. The entertaining, interactive environment and tightly edited collection of products helps tech-shy consumers get comfortable with the latest gadgets.

New Tech Innovations for In-Store may be the Next Retail Real Estate Trend

Sophisticated data-capture is the online retailer’s key to providing tailored product recommendations. Tech innovations are now ready to deliver similar insights for the bricks-and-mortar world. Nomi, the largest player in physical analytics, is extending web analytics into the real world with a platform that gathers insights into shopper behavior via mobile. Mobile identification and facial recognition software, and heat mapping technologies are providing information that will enable merchants to offer an individualized experience that’s not so far from the one shoppers have come to expect online. That’s the kind of experience Rowland H. Macy would have loved.