Remember all the empty freestanding storefronts and shops in malls and strip centers? Some are still vacant, but retail is adjusting to the post-pandemic and e-commerce waves, as well as to inflation, migration and remote work. To tweak the famous quote of writer Mark Twain, the report of its death is an exaggeration.
But it’s not the same old. Instead, it’s adapting with three major trends occurring, according to CBRE.
Suburban retail is strong, after being on shaky ground as many stayed home. When they were ready to venture out, they shopped locally, got to know the Mom and Pop food market, smaller chain of shoe stores or athletic wear and some national chains that had taken spots in affluent ‘burbs. For some shoppers, it was a new experience, thinking local rather than big-city retail. And now many continue to do so. In contrast, the stores taking the brunt of the new activity are retailers on once busy commuting paths. Urban retail availability was much greater than in suburbs, according to an earlier CBRE report from last year. Now, many retailers looking to expand eyeball sites outside the urban core. Already, asking rent growth in the suburbs outpaced urban areas last year. For coming months, the outlook for these suburban retailers is positive since many want to take advantage of their close-by shoppers.
Growth is strong across secondary and tertiary markets. Due to the high costs of homes and apartments in larger, primary markets, homebuyers and renters have migrated away from primary urban markets to secondary and tertiary markets with the secondary typically closer in and larger than the tertiary ones, a bit farther out. In both of these locations, many are able to work remotely all or part of the time, depending on employer demands. CBRE’s Global Live-Work-Shop Report found that 41% of those who wish to relocate in the next two years seek an even more remote location. That’s in sync with U.S. Census data that revealed that tertiary markets performed better than primary and even secondary ones in gaining population from 2019—before the pandemic—to during it in 2022 as it waned. Tertiary markets accounted for 47% of total U.S. population growth and 62% of net migration, despite having 34% of the country’s population.
Why else have these tertiary markets taken off? They offer developers lower land costs to build from the ground up, lower labor costs to build that way or rehab, lower materials costs and less governmental regulation or red tape, which shortens the cycle from permitting through starts and completions. And even with fewer shoppers, foot traffic and sales sometimes are comparable due to less competition. Instead of 10 shoe stores, there may be a few.
Middle-market opportunities. Many retailers in the middle market have seen their margins erode when there’s tougher competition from discount and luxury retailers which have thrived. Recently, however, CBRE pointed out that a growing number of middle-market retailers such as Abercrombie & Fit and European-based Zara are doing well. Dillard’s, a department store chain based in Little Rock, Ark., has also rebounded, in part by making decisions at the family level and among the second generation, whose father William Dillard Sr. founded the company. The chain has also limited discounting and caters more to its customers. And those who keep to the knitting of middle-market prices, so to speak, may find themselves particularly popular with younger shoppers since student loan repayment resumes this fall, meaning this cohort may have fewer dollars to spend but still want to shop where they want and not necessarily at discounters.
But because retail availability and construction starts are both at an all-time low, retailers and landlords are wise to try out new strategies, CBRE advises. Maybe, that will include more experiential pairings since post-pandemic, shopping is also about seeing people, engaging in live conversation and finding joy in addition to buying the shoes, makeup, sports gear and heading home.
Source: “Three Trends That Are Emerging In Retail“