Retail real estate trends are always changing—in fact, change is perhaps the most reliable constant over the decades. Staying ahead of the latest developments is, of course, essential to understanding a market and selecting the best sites. Here are five trends that I think are relevant to decision making in 2016 and beyond:
1. Bigger is safer, but smaller stores surge
Seeking safe bets, investors are focusing on credit tenants and on properties such as Class A malls, JLL reported in its retail investment outlook for Q4 2015. Power centers with blue-chip, big box retailers are in favor, and mall investments rose to 17.2 percent of overall retail investments in 2015 (from 11.2 percent the previous year). This speaks to the new reality we’ve seen unfolding that there are the blue chip properties and everything else.
Meanwhile, small shops are proliferating as entrepreneurs, encouraged by rising consumer confidence, open mom-and-pop stores to service perceived niches, such as the “farmers market experience,” Bisnow reported in a look at retail trends for 2016. To me, this is a welcome trend because the days of cookie-cutter shopping centers may finally go the way of the dinosaur.
2. Cities are cool
Consumers are increasingly in cities. Boomers and millennials alike are flocking there for better access to jobs and amenities such as shopping, according to National Real Estate Investor’s look at commercial real estate trends in 2016. The population of U.S. urban areas increased by 12.1 percent from 2000 to 2012, compared with an overall growth rate of 9.7 percent for that period, the article noted, citing U.S. Census statistics. Retailers are responding by opening city locations as well as stores in suburban mixed-use developments that aim to replicate the urban feel. Even TAS is moving to downtown Providence because it’s cool.
3. Rates are rising
Interest rates will keep rising, and cap rates will rise with them, National Real Estate Investor also noted in its roundup of trends. The federal funds rate could reach 1.0 percent or higher this year, and investors could move into secondary markets and niche properties when cap rates hover below 4 percent in first-tier markets, the news site reported.
4. Healthy is hot
Wellness is becoming more of a retail concept. Fitness facilities such as spinning studios and indoor climbing gyms are booming as people search for new exercise options, Building Design + Construction noted in predictions for real estate trends for 2016. Vacant big-box stores are particularly popular for converting to fitness centers, and shops specializing in athletic clothes and accessories are benefiting from the trend as well. Given this trend, the recent bankruptcy of Vestis and liquidation of Sports Authority are somewhat mysterious to me.
5. Consumer spending is accelerating
New jobs and wage growth are fueling an increase in consumer spending, which accounts for 69 percent of the U.S. gross domestic product, according to a Cushman & Wakefield consumer spending report. Spending continues to move online, but demand for retail real estate space will increase, as will stores trying to benefit from consumers’ largesse.
Trends can come and go quickly, but leases are long, so even the most fleeting shift in retail real estate can have a lasting impact. Staying ahead of the change with market and business intelligence will help you identify and seize opportunities.