Gather around as I carefully tune in to my crystal ball to see the future of retail. There are many macro trends at work shaping the future of this important sector.
First, there is the internet, where we can click a few buttons and have everything we ever desired show up on our doorstep in a matter of minutes. Next is the new urbanization movement giving us more opportunities to live, work, shop, and play in the heart of the city, and never have to go more than a few steps to acquire anything we can’t wait those few minutes to be shipped to us.
The modern workplace feeds us, does our dry cleaning, has a place for us to work out, and even has areas for us hang out and have a drink with friends. The driverless car is just around the corner, in the event we feel adventurous and need to venture off and see strange things.
It would appear that our existing shopping centers don’t have a chance, but I don’t think we should throw in the towel just yet. Although the above factors are real and have an impact, there is still a bright future for shopping centers, both in urban areas as well as in the suburbs.
Significant changes have occurred and so much is yet to come. It’s clear that a lot of our existing centers are currently obsolete. Class B and C enclosed malls are in a very tough spot right now, with many of them needing to be demolished or completely reworked and re-tenanted. Even newer and more well-leased properties need to be shifting their tenant mix, adding more food and entertainment options. Creating a sense of place and giving people a reason to come, and a reason to stay for a while, is more important than ever before.
Something must be going right, however, as shopping center occupancy is near an all-time high. REITs continue to report record earnings with same-property rent growth in the +5 percent annual range that is significantly outpacing inflation. Cap rates are still hovering at an all-time low, meaning that people still see value in acquiring and owning shopping centers.
But wait! I see a package on the front porch of my house. There appears to be fresh ingredients for several easy-to-prepare meals. I’ll get back to you later with more, as my crystal ball is fogging up.
John Zikos is partner and executive director at Venture Commercial Real Estate.