PHOENIX—At this point in the recovery, retail is at a crossroads, says Shari Tucker, council chair of retail investments for Sperry Van Ness. “There’s so much in retail right now that is ever-changing,” she tells GlobeSt.com.
Take absorption rates, which in former years were simply a matter of whether retailers rented the space and, if the space went dark, how quickly the owner was able to fill it. “One thing I’m seeing that’s affecting absorption rates is that users are now buying their buildings and occupying them,” she says. That leaves less space available for rent.
Although we’re seeing fewer large-scale closings on the magnitude of Circuit City’s 2008 bankruptcy, they’re still occurring and when they do, retail landlords are facing a dynamic that’s comparable to their office counterparts. “As in the office sector, tenants’ pursuit of greater efficiency has reduced space requirements for many retailers, particularly those that have introduced scaled-down formats to better suit the tight, inner-city neighborhoods to which young, highly paid professionals are migrating in droves,” according to SVN’s “Retail Market Outlook” report.
When anchor stores go dark, says Tucker, owners attempting to backfill the space face two choices. “If you can find a retailer that wants to be in the area, the box is usually too big,” she says. “So there’s the cost of demising and finding two tenants that will occupy the demised space.” However, that does afford owners the continuity of maintaining the space as retail. If the space isn’t demised, frequently it’s sold as-is to non-retail users, such as charter schools, for instance, or churches.
However, even as ecommerce affects brick-and-mortar retailers’ need for big boxes, “they still want to have the visibility” of a physical store, Tucker says. “Everybody I know still likes to shop.”
A “new” concept in retail is actually a rebirth of an old one, dating from the days of S&H Green Stamps and catalog showrooms. “A number of players are aligning themselves with Amazon and all of the big ecommerce sites, where they’re now housing some of the product that consumers are buying online,” explains Tucker. “So the consumer can go to the store and pick it up, and not wait for shipment. I’m seeing that concept occupying some of the big-box spaces, although it’s not retail space, strictly speaking—more like a distribution center with a retail edge.”
As with its other sector reports, SVN identified “10 retail markets to watch” in its outlook report. Alphabetically, they’re as follows: the Florida Tech Corridor from Orlando to Tampa, Houston, Louisville, New York City, Oklahoma City, Orange County in California, Phoenix, Nashville and San Francisco. What many have in common, says Tucker, is that “these cities have been proactive in their rezoning or their ability to adapt to the changing market.”
In some cities, she says, “people have this hope that the retail is just going to come back, but then they have these old shopping centers that either have to be bulldozed or converted to multifamily; however, they’re afraid to lose the sales tax dollars. That’s not the case in Houston or Nashville, where they’ve been very proactive in changing the zoning laws, looking at each project with an open mind and stepping outside the box.”