Dealing With It

If there was a single theme at the recently concluded ICSC Deal Making Conference in New York City, it was “possibilities.” New projects, new ideas, new trends and a sense of optimism were on display.



The annual conference is not only a (self-described) “great opportunity for owners, developers, retailers, brokers, lenders, municipalities, property asset managers and product and service providers to gather under one roof to exhibit, make deals and form successful business partnerships,” but it’s also an opportunity to take the pulse of the industry, and to hear firsthand from industry professionals about where things stand today and where they might be headed in 2016 and beyond.



The event, which was held Dec. 7 and Dec. 8 at the Jacob K. Javits Convention Center, was certainly a success from an attendance standpoint, with a record-setting 10,000+ attendees, surpassing the previous record of 9,600 set just last year, and nearly 170,000 sq. ft. of exhibits.



Conversations with attendees reveal a wide range of perspectives about the key issues and trends to watch, but there were some consistent overriding themes. The continued emergence of mixed-use, particularly in secondary markets; the continuing “densification” of current markets (often through the addition of residential over retail); and the creative reuse and adaptation of difference spaces — both former retail spaces being converted to other uses (such as co-working spaces) and retail spaces being added to different types of properties–in response to the relatively low supply of high-quality spaces and high occupancy rates in many markets.



Jeff Green and Jerry Hoffman of Jeff Green Partners and Hoffman Strategy Group noticed that the convention was busy, and bustling with a diverse range of attendees from all over the country. Green was struck by the growth of multi-family product positioned in concert with retail components, and views the growing popularity and prevalence of mixed-use as perhaps the single-most important trend to watch in 2016. “Getting mixed-use to work in secondary markets will be essential,” said Green, and the continuing influence of Millennials and other young people, as well as the push to transform underperforming malls into mixed-use projects, will both be evident in the next few years.



Hoffman noted consistent efforts to densify retail properties in key markets, pointing out that this phenomenon is primarily taking place in suburban markets. “Understanding the costs and subtleties of multifamily and incorporating it into retail will be a challenge for developers,” he said, who will also need to “find ways to meet the sometimes divergent needs of both Millennials and empty nesters.” Hoffman sees entertainment as an increasingly important piece of the mixed-use development puzzle, highlighting arenas and sports venues as opportunities for inclusion in more diverse and dynamic retail and mixed-use developments. He sees the need for municipalities to think more aggressively about incentives, with more zoning flexibility and creative financing solutions deployed to help revitalize communities with public resources. In the face of this turbulence in formats and formulae, Hoffman expects owners to be more willing to form professional partnerships with other property experts to better execute complex mixed-use projects.



While Hoffman recognized the positive energy at the conference, he wondered about the possibility of an “irrational exuberance” bubble, noting that the volume of acquisitions is driving up land prices.



Nick Egelanian of Siteworks Retail Real Estate Services pointed to the convergence of specialty and commodity retail and the rise of outlet retail as one of the biggest stories in the industry. Egelanian sees outlet and discount concepts as the primary merchandising vehicle for mixed-use and specialty centers, and highlighted an industrywide shift away from the traditional department store model. “We’re getting closer to the serious collapse of the department store sector,” he explained.



Jonathan Lapat of Strategic Retail Advisors (SRA) and X-Team International President says that things might have been hopping at the conference, but he is a little leery about whether all of that will translate into fully realized projects. “People are busy, but they are also hesitant,” he said. “There are not as many projects actually crossing the goal line as you might expect.”



And if interest rates are low and the economy continues to improve, why are retail sales lagging?



Lapat sees value retailers continuing to perform well, and expects the discount trend to continue in 2016, with more retailers launching discount concepts. Another area of potential growth is the trend for traditional online stores making the transition to bricks-and-mortar.



Michael Salove with MSC Retail and Jared Meier from Streetsense noted a number of evolving and emerging trends that will likely continue to come to the forefront in 2016, including a shift in perspective so profound that “experience per square feet” has become a critical (if perhaps still informal) criterion for a successful project. Salove sees hospitality features being added to residential projects, with retail sometimes functioning as an amenity. He anticipates a great deal of repositioning work in urban environments, specifically citing the potential for office buildings to be repositioned for alternative uses. Meier pointed out that it feels like “everything is mixed use–even in the suburbs.” And with the influence of mixed use more prevalent, co-tenancy considerations are more important than ever. He maintains that entertainment-anchored products and transit-oriented development will continue to loom large in 2016 and beyond.



Other observations from the conference floor? Across the board, the focus on Milllennials continues to hold steady, with more attention being paid to “internet proof” retailers, as well. The general consensus among conference attendees seemed to be that retailers will be expanding in 2016, but will be selective about that expansion–prioritizing unique spaces and places. Discount retailers will continue expanding into smaller markets, and there will likely be a growing number of non-retail or non-traditional uses in typical retail spaces. The “de-malling” of Class B and C malls will continue, and entertainment anchors will continue to emerge. On the restaurant side, fast casual continues to impact traditional dining options, and chef-driven concepts are extremely popular.



“You have to have good food, and you have to have options and experiences for people they can’t easily get elsewhere,” added David Baker of Baker Storey McDonald Properties. “The bottom line? Great retail and mixed-use is about experiences: those things you can’t do from your couch or your keyboard.”