Entertainment Remains Top Retail Trend in 2016

LOS ANGELES—The retail market had a steady year in 2015, with increased occupancy and absorption but marginal growth in consumer spending. Still, the retail investment community is optimistic about continued growth in 2016. To find out about the trends and the concerns for the year ahead, we asked top retail players Jim Dillavou, a principal at Paragon; Jeff Kreshek, VP of leasing on the West Coast at Federal Realty Investment Trust; Elizabeth Hoxworth, director of real estate at Sprouts;Clare De Briere, chief operating officer and EVP atthe Ratkovich Co.—all of whom are speaking at the ICSC's Southern California Deal Exchange in Los Angeles later this month—what they are forecasting for the year ahead.

GlobeSt.com: What are your main concerns heading into 2016?

Dillavou: None. Fundamental are good, a pullback would be positive, and increase interest rates are all healthy indicators. Tenant consolidation and bankruptcies will continue as the industry continues to "reinvent" itself. We should expect—and plan for—many more years of this in the retail business before stabilization is reached. To us, this is a positive as it creates opportunity.

Kreshek: Changing consumer behavior and its continued impact on retail tenancy and development.

Hoxworth: As for 2016 from a business prospective the continual pressure on rents caused by a very active residential environment, low interest and restrictions on development make expansion challenging. It will be an interesting year with the Presidential election, but one wonders to what extent it really matters. Grid lock in congress is a sad and discouraging comment on our times as is the hostility among its members.

De Briere: I am confident in the strength of downtown Los Angeles overall, on an office, residential and retail perspective.  The transportation infrastructure that has been put in place will forever change the nature of downtown Los Angeles, making it the central gathering place for the entire southern California region.  My only concern is related to the potential impacts associated with fears of future terrorist attacks and how we maintain an open, active and exciting environment in the context of strict safety guidelines.  On a lighter note, opening an open-air retail center during an El Nino is a bit of a worry, as well!

GlobeSt.com: What are the most prominent trends we will see in 2016?

Dillavou: Historically, due diligence for owners and tenants consisted of two main categories: due diligence on the physical asset and due diligence on the tenants. Now, for the first time ever, a new third category has been added: 'what will this asset look like in 10 years.' It's an amorphous concept with numerous component parts, which requires a macro understanding of prevailing economic trade winds, rather than just a microanalysis of the asset itself.

Kreshek: Continued interest in experiential retail versus functional retail and its impact on retailers and developers.

Hoxworth: In traditional retail we need to discuss internet vs. bricks and mortar after the holiday results are in. Food and entertainment will continue to drive shopping center traffic. The addiction to phones vs. personal contact will drive our industry.

De Briere: I believe that the most prominent trend in retail will continue to be the transition of brick-and-mortar stores from places where goods are sold into entertainment and marketing vehicles.