As 2015 draws to a close, Shopping Centers Today look back on some of our biggest and most important stories of 2015.
• Investors pressure retailers to sell real estate — Sky-high valuations for commercial real estate and investor demand for net-lease properties are inducing retail and restaurant chains to spin off company-owned real estate into publicly traded REITS. “Why haven’t all retailers done this? This looks like a free lunch, but there are no free lunches,” said Howard Davidowitz, who heads New York City–based Davidowitz & Associates, a retail consulting and investment banking firm. . “When activists push this, they make it seem like you are not in your right mind if you don’t do it. But do you think Target executives were in their right mind when they rejected the idea?”
• Discounters disrupt supermarket industry — Traditional supermarkets on both sides of the Atlantic are losing market share, thanks to a rapidly advancing horde of competitors seeking to outdo them on price, convenience and quality, experts say. “Whereas once consumers bought all their groceries at one location, this is no longer the case. Consumers are now splitting their grocery shopping across multiple channels — as many as five,” wrote JLL analysts in the firm’s Retail Shop Topic report published last September. “By 2018, traditional supermarkets’ share of grocery dollars [in the U.S.] will have shrunk 300 basis points to 37.2 percent.”
• Retailers have big expansion plans — About 70 percent of the world’s chains are adding stores this year, offering a big endorsement of physical retail. Brick-and-mortar remains primary, but “the way to develop a successful brand these days is through multiple distribution channels,” according to Jeff Green, who heads an eponymous firm in Phoenix.
• Department stores go 'off' — Nordstrom Rack, Ross Stores, TJX and other chains that sell high-profile brands and designer goods for 20 to 60 percent below department and specialty store prices are outperforming much of the retail sector; they are growing faster than competitors and gaining market share. The sector’s popularity surged during the recession and has remained hot now that the economy has rebounded. Emboldened by a nimble real estate and merchandising strategy and by growing clout with vendors, these off-price chains are on an expansion binge stateside and in international markets too. “With the expansion of different retailers and brands [into this sector], including department stores like Saks and Neiman Marcus, higher-income shoppers have joined the off-price party,” said Wendy Liebmann, CEO of WSL Strategic Retail. “They’re smart shoppers, too.”
• 1031s in danger — As Congress seeks ways to trim the national budget, 1031 Exchanges have fallen under scrutiny. Scrapping the tax program would help neither the economy nor the industry, investors say. Critics say these incursions derive from an errant view that those who exchange a property and invest in something new will not pay taxes. “That is just not true,” asserted Bill Rose, vice president and national director of the national retail group at Marcus & Millichap. “People are just deferring taxes.”
• Stores become omni-channel hubs — As more retailers pursue omni-channel strategies, they are using their stores as hubs for delivery and pick-up of online purchases. “We’re already shipping digital orders from approximately 140 stores, and by the end of this year, we’ll be shipping for more than 450 locations,” according to Chairman and CEO Brian Cornell.
• Urban retail attracts REITs — Downtown store frontage, shunned by retail investors a few decades ago, has come back big in the eyes of REITs and upscale merchants. Both are competing vigorously for street-retail sites, encouraged by the residential flight back to the urban cores. Growing numbers of retail REITs, including Acadia Realty Trust, General Growth Properties and Regency Centers Corp., have joined seasoned urban veterans such as Vornado Realty Trust and Forest City Enterprises in staking out — and bidding up — street-retail spaces. “Street retail used to be sort of a cottage industry with a small group of players, but not anymore,” said Alexander Goldfarb, a managing director and REIT analyst at Sandler O’Neill & Partners. “The secret is certainly out — everyone is evaluating it.”
• Landlords cultivate independent tenants — More landlords set up incubation programs to help first-time tenants succeed in a highly competitive retail environment. Free advice, and even free rent, are part of the package. At well-located regional malls, doing deals with smaller tenants requires a willingness to sacrifice some rent to the larger goal of a livelier tenant mix, Mastin says. “If we just strictly looked at the rent structure, we would never be able to do deals with locals,” says Anne Mastin, executive vice president of retail real estate at Steiner & Associates. “But one of the complaints you’ll hear about our industry is that ‘shopping centers all have the same tenants.’ You have to remember that doing deals only with those who have the biggest bank statements doesn’t necessarily produce the most interesting tenant mix.”
