8 changes that will impact the retail real estate industry
The retail real industry has experienced its share of changes over the years, but nothing comes close to the transformation that it is currently undergoing.
As the industry undergoes what the International Council of Shopping Centers calls one of the “most profound transformations” in its 60-year year history, the association has releases its Envision 2020 report, a collaborative initiative that outlines where the industry will be in five years according to leaders from around the globe.
The study outlines eight “defining” changes that it predicts will impact the retail real industry going forward.
Here is an overview:
#1: Unification of Bricks-and-Mortar and Online Retail
The convergence of physical and digital appeals is occurring on both sides of the retail spectrum. Shopping centers now offer sophisticated digital interfaces, innovative websites, and mobile communications to fulfill the increasingly web-savvy consumer.
Conversely, retailers like Bonobos and Amazon.com are among the rising wave of e-tailers who are rolling out brick-and-mortar stores.
#2: Unprecedented Intimacy with the Consumer
Developers and retailers are utilizing technology like mobile applications, social media, beacon and geo-fencing technology to get to know the consumer and increase consumer engagement.
#3: Conversion of Shopping Centers Into Communities
Retail properties are evolving into shopping, dining, and entertainment hubs that are central to, and fully integrated with, the communities that surround them. Centers are taking on mixed-use elements with residential, hotel, and office space, and entertainment options including cinemas, health clubs, restaurants, and recreational areas.
#4: Mall Environments that Engage Millennials
The millennial generation in the United States is projected to surpass baby boomers this year as the nation’s largest living generation, according to the Census Bureau.
In order to appeal to this all-important generation, shopping centers are providing customized, personalized, and sustainable features. JLL reported that most millennials (82%) prefer to shop in stores, although they spend a great deal of time browsing and researching products online beforehand.
#5: Incorporating Distribution Into Shopping Centers
As landlords position their properties to stay relevant in the digital age, shopping centers are increasingly doubling as distribution centers to fulfill both in-store and online orders. Consulting firm A.T. Kearney reported that 23% of customers purchase additional items when picking up an online order in-store.
#6: Accelerated Developer–Retailer Collaboration
The landlord-tenant relationship will evolve into a more collaborative paradigm, resulting in a freer exchange of information and technology that helps both entities spend more wisely and avoid duplication.
#7: Emergence of a New Blended Rental Model
Rent calculation will evolve into a new formula that incorporates the role of the physical store in the broader omnichannel retail activity, taking into account digital transactions.
The range of potential models includes more traditional approaches such as fixed rent, and base plus percentage rents, as well as models that include a proportion of click-and-collect via in-store and online sales in the percentage rent.
#8: Arrival of a Retail–Friendly Investment Outlook
As new shopping center formats emerge, lenders will increasingly favor retail investment opportunities. Institutions now allocate nearly 10 percent of their portfolios to commercial real estate, a significant increase over the last several decades.