LOS ANGELES—A climate of disruptiveness brought on by e-commerce and demographic shifts has varying implications for US retail real estate this year, says CBRE. On the one hand, it will lead to more collaboration between retail tenants and their landlords; on the other, the performance gap between top-tier and lower-rung shopping centers will only widen.

That being said, CBRE anticipates five years of solid rent growth for retail properties in non-gateway markets, thanks to their employment and population growth and their available runway for rent gains. Near term, Atlanta, Houston, Nashville and Denver all are expected to see year-over-year rent gains of at least 2.5% during 2018.

“Successful redevelopment in the urban core and a rise in mixed-use projects in the suburbs, together with strong employment and population growth, make these markets especially attractive to investors,” according to CBRE's 2018 US Real Estate Market Outlook report. “Major gateway markets like Washington, DC and Chicago, where demographic and demand growth are steady but less robust, are expected to see rents grow, but at a more moderate pace.”

The current year “has started strongly for retailers and owners of retail centers, given the momentum generated by a robust holiday season, low unemployment and healthy consumer confidence,” says Brandon Famous, CBRE Americas retail leader and head of the company's retailer-representation practice. “We see continued shopper affinity for discount and off-price retailers, emerging brands, food and beverage, and retailtainment.”

A newly minted example of the trend toward F&B and entertainment components is the Lawrence Group's City Foundry STL mixed-use redevelopment of the historic Century Electric Foundry Complex in St. Louis. CBRE said Wednesday that the project's first phase will be anchored by a 10-screen Alamo Drafthouse Cinema, a Texas-based chain that combines scratch meals and craft beers with current and cult-favorite movies; Punch Bowl Social, an award-winning “eatertainment” concept that combines social gaming with F&B offerings; Fassler Hall, a German-inspired beer hall and rooftop beer garden operated by pub-and-restaurant owner McNellie's Group; and the Food Hall at City Foundry ST, said to be the first of its kind in the city. A CBRE team led by SVP Andrew Turf is handling the retail leasing.

At existing properties, meanwhile, investors are taking steps to improve the customer experience. Especially for B-grade centers that need to close that performance gap, this can mean adding nontraditional tenants such as entertainment uses and nonretail tenants such as fitness and healthcare operators. As the gap between A and B or C properties continues to widen, CBRE expects that we'll see more opportunities arise for investors who are willing to redevelop, reposition and re-lease certain struggling centers

Additionally, CBRE says, retail landlords will seek to create unique environments at their centers by collaborating with their tenants. This collaboration can take the form of setting aside spaces for pop-up shops that might eventually become permanent tenants, sharing data with retailers to improve marketing or taking equity stakes in start-up tenants in exchange for defraying their occupancy costs.

“The US retail industry is evolving rapidly, but it isn't receding,” says Todd Caruso, senior managing director at CBRE. “Headlines likely will continue to focus on the fallout. But what gets less fanfare, though it is more significant, is the growth of discounters, new concepts and international retailers, as well as successful transitions by many retailers to become truly omnichannel operations.”

Instant Insights /

For Non-Gateway Retail, 5 Years of Growth

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