SAN DIEGO—Compact-sized stores that are typically known for their big-box footprints “will have broad-reaching effects for urban consumers, local governments and CRE companies alike, providing consumers with more-diverse shopping options closer to home,” Crosbie Gliner Schiffman Southard & Swanson LLP partner Craig Swanson tells GlobeSt.com. As prices per square foot surge, retailers are searching for more compact space in urban areas. Swanson recently helped negotiate the lease of the smaller format Target Express project in San Diego's burgeoning South Park neighborhood and says this smaller big-box format is an emerging trend in the retail arena, along with high-impact adaptive re-use of regional malls and increase in urban-infill projects with Targets and Costcos. Here, he discusses these and other key retail trends in an exclusive interview with GlobeSt.com. 

GlobeSt.com: How is the emerging smaller big-box format progressing in CRE? 

Swanson: As real estate becomes increasingly scarce, resulting in higher real estate costs, urban populations continue to grow, with Millennials demanding more retail services. Challenged by local jurisdictions trying to curb sprawl, retailers are adapting to these economic, demographic and regulatory changes by moving away from their prototypical stores and developing smaller formats for infill locations. A number of national retailers including Gap Inc., Target, Petco, Best Buy, Office Depot and Walmart are leading the pack in downsizing store footprints. This trend will have broad-reaching effects for urban consumers, local governments and CRE companies alike, providing consumers with more diverse shopping options closer to home. 

Smaller, yet more numerous, retail outlets will allow local jurisdictions to diversify their tax base, and commercial real estate companies will be able to accommodate marquee tenants in locations that were previously too small for such retailers. Smaller formats also create internal efficiencies for the retailers, who can rely heavily on their e-commerce operations as an alternative to carrying large inventories of products on-site and offers a way for them to open more stores within the same trade area. Millennials are comfortable with a hybrid consumer approach whereby items ordered online are delivered to a store that is closest to the buyer's home, thus allowing smaller formats to offer a much wider selection of merchandise without the expensive overhead costs associated of maintaining large on-site inventories.

GlobeSt.com: How are regional malls achieving high-impact adaptive re-use?

Swanson:Many regional malls benefit from having large tracts of land in central locations. With higher-density development being encouraged by metropolitan municipalities, market forces and scarcity of developable land, regional mall owners can take advantage of well-located assets to create mixed-use communities that support higher densities.  The idea of a live/work/play self-contained environment resonates with people. 

GlobeSt.com: How are stores like Target and Costco taking advantage of urban-infill space?

Swanson: Target has recently adopted two new formats: the CityTarget and the Target Express. The CityTarget is smaller than the traditional Target stores. The three I'm familiar with in San Francisco and downtown Los Angeles are 100,000 square feet to 120,000 square feet, and the Target Express is even smaller (the one I'm familiar with in San Diego, which hasn't opened yet, will be approximately 18,000 square feet). Although I'm not aware of Costco utilizing a smaller format, the company has started opening full-sized stores into existing regional malls in locations where one of the existing department stores has closed. In these situations, Costco has demolished the existing department store and constructed its store in the same location, but on one level and with a bigger footprint and an entrance into the mall. In addition, other users, such as theaters, hotels and even grocery stores, have taken advantage of department-store vacancies and mixed-use development opportunities within regional malls.    

GlobeSt.com: What else are you noticing about retail trends?

Swanson: The need for mall owners and retailers alike to create a “shopping experience” has never been greater as Internet retailers become more adept at capturing retail sales from a broader demographic of consumers. Apple was a pioneer in creating that “shopping experience” with its Apple stores, and as a result, more and more retailers are focusing on using their retail space to deepen their brand identity and solidify their connection with the consumer. Retail property owners are also investing more resources to attract the consumers by adding more high-quality amenities to shopping centers, such as valet parking, car washes, high-end restaurants, auto showrooms and even residential and hotel uses.

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Carrie Rossenfeld

Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.