The youngest of my family is an interesting sort. While all of my children are different, this one is an outlier. A few years ago, when he came home to proudly announce he had gotten a job at a local pizza shop, I wasn’t surprised.
In a recent announcement, LightBox principal analyst Dianne Crocker predicted that as many as 25% (a quarter) of America’s malls can be expected to close down within the next three to five years.
This is, obviously, a trend that commercial real estate (CRE) professionals – like us within NAI Global – have been aware of and tracking for many years, but the LightBox prediction goes on to offer some idea of what we can expect to see filling these spaces in future and what investors see as the opportunities created by this trend – both projections worth exploring.
The “death of retail” has been hanging over the industry’s head for the better part of a decade, but what is more likely – Crocker and NAI agree – is a move away from brick and mortar towards e-commerce, with a hybrid model in future. This trend was merely heightened by the Covid-19 pandemic.
The Amazon effect
This is in line with what trend analysts and futurists like Doug Stevens are forecasting. Stevens told RetailDive last year that by “2033 the majority of our daily consumption will be transacted online”.
“In the future, all but the most convenience-based retailers will begin to use their stores as media to acquire customers and their media platforms as stores to transact sales…” – Doug Stevens, author of “The Retail Revival: Re-Imagining Business for the New Age of Consumerism”.
This tracks: Our most recent Real Estate Outlook study, Q42020, found that over half of the survey respondents (57%) said the “Amazon effect” was expected to have an even larger impact on their CRE markets than the pandemic itself.
A buyer’s market
Crocker argues that the slowdown in deal volumes initiated by the pandemic has left a supply gap, and described the demand from investors as “pent up”.
“Institutional capital right now is focusing its repurposing investments on the safest benefits, the suburban metro areas that have seen meaningful growth in the past year…” – Dianne Crocker, LightBox principal analyst.
Multifunctional malls with a lifestyle component are not only the darling of consumers, but of investors too including private equity firms looking to score a bargain on a distressed CRE asset.
We are seeing this interest spiking too, and not just for straight sales. There is much interest in reusing these generously sized spaces in novel ways.
There are many such developments on the cards around the country. In Benton Harbor, Michigan, plans have been suggested to reconfigure the Orchards Mall with some 116 luxury two-bed apartments, with six-month leases to attract business travelers. Chapel Hill Mall in Akron, Ohio – which was foreclosed – expects to see new life as a business park.
There are also some less-traditional buyers in the market for malls these days. Gaming giant Epic Games recently bought up an almost 90-acre defunct mall in Charlotte, NC, that will be refitted into their new international headquarters.
Repurposing and extended life
The malls that outpace the trend will be those with a strong anchor tenant and those that offer the live-work-play balance. Crocker argues that malls that are grocery-anchored, or those “featuring medical services, pharmacies, gyms, and lifestyle amenities are more likely to survive in their current forms.” This is the kind of mall that will become a hub of urban life, she says.
An anchor tenant with a multichannel presence and a pandemic-proof loyalty is a gamechanger for mall and retail leasing.
Malls also have, we believe, a long life ahead of them as places to showcase goods and establish brand experiences. Raydiant makes digital experience tools for real life spaces. Writing for Forbes in 2020, Raydiant CEO Bobby Marhamat wrote that “in-store experience defines retail for people”.
“Touching products is part of that experience, but helpful staff, well-organized showrooms, unexpected activities, smart technologies and other components all combine to create exceptional experiences…” – Bobby Marhamat, Raydiant.
These factors combined are why smart money is betting on not ‘a death’, but ‘an evolution’ for our malls.
We all know the old real estate adage – “location, location, location” – but economies in the 21st century are tending towards “as a service” thinking, a trend characterized by a handful of big-name disruptors like Uber (transport-as-a-service) and Airbnb (accommodation-as-a-service).
In this model, the hassle and upkeep, the peripheral add-ons, are all rolled into the cost for clients and can make a compelling ‘sales pitch’ for would-be buyers.
“The other downstream effect of this is the emphasis on service itself – the quality thereof, more than its existence,” says Cliff Moskowitz, EVP, NAI Global. “Commercial real estate (CRE) professionals and firms that offer competitive, value-adding services can set themselves, and their listings, apart.”
A partner in time
For the owner and occupants of a retail property, having access to smart, speedy services as part of your property contract is a game-changer.
Services for occupiers include the obvious (like group marketing, facilities management, and lease administration), and then superior service offerings (such as omnichannel real estate solutions and supply chain advisory).
With services for investors, this category might include property marketing, valuation, and advisory services, and project management, which all exceed the traditional-but-still-essential landlord representation and leasing, and property management.
Next generation services
Retail properties can now include considerable benefits to occupants and tenants on the “as-a-service” model, including technological infrastructure, security, renewable energy generation and management, event management, and even click-to-collect services.
The increasing availability of these kinds of options means that retail property managers can offer far more for their clients without intense capital expenditure on their part or the client’s part, as these are now shifting to the operational expenses column in the books.
X marks the spot
When we pivot to thinking of ourselves as CRE service providers, we shift from a “sales first” approach to one of “service first”, and we also see the corresponding language shift from “renter” to “customer”.
This encapsulates the contemporary approach to business which centers the customer experience (CX) above everything.
With CX as a guiding principle, CRE professionals can position themselves for longer-term partnerships with their retail clients, and as premium providers, achieving both better numbers for themselves, and a higher return on investment for their clients – and that is the definition of a win-win deal.
The cliché of “Location, location, location” applies in commercial real estate (CRE) as much as residential, but what factors you bundle into that assessment are, naturally, vastly different and should be explicitly tied to corporate strategy. That’s the realm of corporate real estate management (CREM).
A savvy corporate client on the hunt for premises will be asking whether a proposed site will support their corporate goals.
When considering a potential position for offices or logistics, for example, an assessor might ask about the transport links, the nearby shops and facilities. They may consider perception and whether the location is in keeping with brand identity.
They will need to understand the current and future demands the company will make of a location, and how the lease or sale terms will be perceived by a board or management team.
Access to (human) resources
There is another oft-overlooked location factor that NAI argues should form part of a CRE strategy: talent and access to the right people.
This is the nature of cities or areas that become hubs for specific industries and sectors: they have a rich pool of workers with the right mix of skills to draw from. If you’re looking for the top geologists in the world, you probably want to focus on an area associated with mining. Want people who are passionate and knowledgeable about the ocean? Try Hawaii. Silicon Valley, and increasingly Texas, are meccas for the technically minded.
There’s remote work and transferable skills to consider, of course, but generally speaking a talent pool linked to an area is self-sustaining, in the way that Silicon Valley and Stanford will always be linked in their mutual development paths.
What type of staff you envision filling your hallways and boardrooms will also inform other location considerations: like access to good schools, parks, or public transport.
Property as an asset
Last but definitely not least, the right property is an asset and an investment with future dividends. This is why a smart broker, or their corporate client isn’t just looking at what is now, but what could be, what’s on the horizon, and any prevailing trends that need to be considered.
A client with explicit return on investment (ROI) expectations or a particular appetite for risk – as just two examples – should place that information on the table from the get-go, as premises can be (and often are) serving the dual purposes of functional and financial.
Remember: business strategy should drive a real estate decision, not the other way round.
In contemporary developments, environmental building has gone from being a ‘nice touch’ to a nearly mandatory consideration. Today’s consumer culture is passionate about choosing brands and companies that make eco-conscious choices, which have put the pressure on professionals to take tangible (and marketable) steps towards going green.
Resultantly, this has fueled a major trend in the world of commercial real estate. As their clientele demand all things green, our tenants and investors are hitting the commercial markets with green building in mind.
With success on the line, CRE pros need to start incorporating the green building module into their strategies. Fortunately, there are tons of different ways this can be accomplished – many of which won’t break the bank.
Let’s take a deeper look at green building and review some tips that will help CRE embrace this lasting trend.
Green Building Defined
Green buildings place strong importance on sustainability, waste reduction, and lessening a property’s carbon footprint. Successful green buildings are given the official stamp of approval by the Leadership in Energy and Environmental Design (LEED). There are more than 200,000 LEED-certified buildings globally and the trend is only growing.
It’s safe to say that nearly every commercial sector is taking steps to become more environmentally-friendly. Retail, multifamily, office, hospitality, and even industrial are all being pushed towards a greener outlook. This development is having a big impact on the physical spaces they inhabit.
However, that’s not to say that all green upgrades will rack up a big price tag. Here are a few great tips to help you achieve a building that’s good for both the planet and your bank accounts.
Keep Your Eyes on These 3 Trends
Apply these 3 environmentally-friendly tips to your commercial portfolio to seamlessly transition your buildings into a greener future.
Include Green-Thinking In Daily Habits
Sometimes, it’s the little things that matter most.
It doesn’t always take a huge effort to cultivate a greener building. Instead, property owners can add a few easy-to-do daily habits to your regular maintenance routine. Get serious about recycling efforts, install a bike rack for tenants, and educate building users about cutting back on wasted water.
Have you heard of the green leasing trend? If not, you’re missing out on an eco-friendly practice that’s not only helpful but also nearly cost-free. When writing the lease document, draft up energy-efficient reports, create recommended-use directions to reduce waste, and add in green requirements.
Whether it’s appliances, tools, or lighting; green buildings employ eco-efficient products as much as possible. A great way to get started at a low cost is by replacing the building’s older lights with LED lighting. LED lighting lets off more light and less heat, meaning less energy is being wasted.
Wasting less means spending less. Watch utility bills reduce after applying energy-saving tools throughout the commercial property.