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Charlie Myers: The Good News About the Future of Retail Development

In previous years, there was a great deal of posturing and waiting for better times because it was not that many years ago that we were downsizing and shuttering stores. This is no longer the case. Retail development is exploding.
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Charlie Myers
Charlie Myers

I recently attended the International Council of Shopping Centers’ RECon conference in Las Vegas—along with retailers, developers, investors and brokers from around the globe. It was the largest attendance since the recession, and there were a lot of new players, including many office and hotel developers who traditionally have not been involved in retail.

The mood at RECon was very bullish, as everyone came to make deals for building, leasing or buying space. In previous years, there was a great deal of posturing and waiting for better times because it was not that many years ago that we were downsizing and shuttering stores. This is no longer the case. In fact, the consensus at RECon was that retail development is exploding. However, there is not a lot of available space so build-to-suits and renovations of existing spaces will be a popular trend moving forward.

The good news is that retail is back to normal, and there is an abundance of confidence that retail development will remain strong and sustainable.  The new three-year forecast from the Urban Land Institute Center for Capital Markets and Real Estate predicts solid growth with total annual returns for the retail sector to be 10.9 percent in 2015, 10 percent in 2016 and 8.4 percent in 2017.

But what’s driving this growth? With the new players, there is a push for high-end, mixed-use projects that provide live, work, play concepts and amenities-rich environments for entertainment. Frisco Station, Lone Star Crossing in Fort Worth, and Victory Park in Dallas all include large entertainment components with a good mix of brand name retailers. In addition, these locations offer great synergies for successful office, hotel and multi-family developers.

As for speculative growth, developers are looking at particular users. Whether it’s an LA Fitness or a Cinepolis, the underwriting is too tight for the type of unbridled development that made up the mid–2000s.

And who expects a great retail experience? The millennials. The new model for anchoring a center will mean bringing together popular restaurants, movie complexes and even water parks to create attractive shopping experiences.

According to Simon, a global leader in retail real estate, there will also be retail disruptors. Simon has partnered with Decoded Fashion, which hosts a global event series to identify emerging fashion and retail entrepreneurs. The goal of the partnership is to seek exposure for new startups with the potential to impact the future shopping experience, and it is this innovation that they believe will attract and engage future customers.

Millennials are also leaning on technology as their preferred sales associate. However, there is promising news amongst these shoppers. According to an annual retail report from The Nielsen Company, while 87 percent of smartphone and tablet owners use a mobile device for shopping activities, including comparing prices online, the majority still prefer the brick-and-mortar experience.

Retail reporter Natasha Baker with Forbes BrandVoice says that retail stores are going to begin to embrace show-rooming and place beacons or sensors throughout their stores that communicate information to smartphones and track which products customers spend more time around. Offline retailers will also have the same ability to use analytics for mapping customer preferences. The retail experience of the future will blend offline with digital to engage, entertain and analyze customer behavior and preferences.

And there is more. Developers and retailers are willing to pay the rent necessary to do deals. So even though we have already experienced a strong year for our company in terms of retail projects, we anticipate that 2016 will be even stronger. There are some large complex developments on the horizon in the North Texas region.

But given that many of the destination centers will dominate new construction, what is happening with outlet malls? Many existing malls are at capacity and are actively looking to expand their retail centers. They are still thriving and in vogue, attracting many boutique and luxury brand names. According to ICSC, 19 expansions of outlet malls and 48 phase one centers, comprising 18 million square feet, are planned through 2017. Of course, the tenant mix will need to be attractive to families and the diverse interests of shoppers.

And e-commerce? Not surprisingly, e-commerce has been embraced as a “given,” but, in terms of a destination experience, retailers and consumers alike recognize that it is entirely transaction-based. People want to enjoy the mall experience, which is why ISCS attendees are anticipating the future of retail to be promising and robust.

All signs point to good years ahead.

Charles R. Myers is the CEO of MYCON General Contractors in McKinney, Texas and co-chairs the Industrial and Office Local Product Council for the North Texas District Council of the ULI. He can be reached at [email protected].

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