The X Factors
One of the most exciting and rewarding things about being part of a tightly integrated national network of retail brokerages is the degree to which that network can serve as a resource unto itself. Fellow professionals from around the country and the world can engage in knowledge sharing about market-specific forces, industry observations and invaluable perspective about the changing face of the industry. Not only can we exchange specific strategies, techniques and tips, but also important insights into the big picture trends that shape the marketplace and impact not only the retail brokerage landscape, but the entire commercial real estate development world.
For more than a decade, X-Team International partners have been coming together every year to do just that at our annual conference. The 2016 event, which took place from Wednesday, Feb. 3 to Friday, Feb. 5 at the Omni Nashville Hotel was (by far) our most successful to date. Over 160 commercial real estate professionals from 35 different partner offices around the U.S. and Canada came together for three days to learn from each other and look forward to what might be in store (no pun intended) in the months and years ahead. It was a thrill to note that, in the 13 years that this conference has been held, this year’s meeting was the biggest yet.
From round table discussions, instructional sessions and seminars, and less formal interaction through team building and other events, we covered topics like Hot Restaurant Concepts, Joint Venture Opportunities, What Can You Learn From Someone Under 40, and Getting Ahead: How Are Retailers Expanding? And, while we covered a whole host of issues large and small, it was clear after three days of collaboration and knowledge sharing that certain themes and consistent questions were emerging.
The recurring themes and key takeaways encompass a range of issues that are clearly relevant and resonant in today’s marketplace, specifically:
The Evolution of Discount Retail
The growing influence of the evolving discount retail sector is an issue that remains top of mind for many developers, brokers and other commercial real estate professionals. Not only are more and more brands coming out with new discount concepts, but changing perceptions about outlets have unlocked new opportunities. The continuing expansion of the outlet marketplace, as outlet moves into spaces and developments traditionally considered “off limits,” is clearly something to watch in years ahead. Outlets bring their own demographic considerations and co-tenancy dynamics, and require their own retail and mixed-use calculations.
Rising Occupancy Costs
For the first time in a long time, there was serious discussion about whether or not the market may have topped out in terms of occupancy costs, and about whether or not we have hit that magic threshold where (at least in some of the more competitive urban environments) rental costs have gotten so high that even strong sales won’t necessarily be enough to justify them. Take New York, for example. On the one hand, rents in many sub-markets are at all-time highs, which obviously makes landlords extremely happy, but there are other markets where the rent bubble clearly has a leak. There are an inordinate number of vacancies along Broadway in Soho. The reality is many retailers just can not justify the occupancy costs in that sub-market. Other major metropolitan markets across the country are seeing similar cracks in the armor. There is certainly a growing likelihood that we are reaching a point where retailers will say uncle. The $64 question is what happens if and when that this occurs? The good news is that we likely won’t see a crash, but more of a modest market correction. Either way, this is something that definitely bears watching going forward.
Mobile/Online vs. Brick-and-Mortar
While integrating mobile and online sales into an effective and sustainable omnichannel approach remains a priority for many retailers, the conference consensus is that mobile and online retail remains a complementary piece of the overall marketplace–and not necessarily the paradigm-busting transformation that some have portrayed it to be. Today, approximately 7% of all retail sales take place online. And while that number is projected to grow in the years ahead, that growth is slowing, and reactionary or impulse-driven responses to the perceived “threat” of online retail would be misguided. It seems clear that there is a cap to the quantity and character of retail transactions that are likely to take place online, and that shoppers will continue to come to brick-and-mortar destinations in search of the strong social and experiential elements that are unique to brick and mortar (particularly mixed-use spaces). The explosive growth in the restaurant segment, particularly fast-casual dining, is a testament to that behavioral preference.
Landlords and developers are tasked with evolving the type of product they are creating in order to keep the shopping center/mall experience fresh. Those who don’t may find themselves looking from the outside in.
The Growing Influence of Millennials
X-Team members and their clients are certainly not the only commercial real estate professionals asking themselves to what extent do we need to cater to the needs of Millennials? As the buying power of this influential segment increases, some retailers are changing their strategies to accommodate or appeal to a younger Millennial demographic. While there is no denying the pull of the Millennial market, the conference consensus was that it is (generally) a mistake to completely change your philosophy to try to tap into one segment. Subtle changes in strategy or merchandising? Sure. Taking a closer look at more urban and mixed-use locations? Perhaps. All of that makes sense. But it is essential not to compromise your retail identity or lose sight of your long-term vision in the process.
Jonathan Lapat is president of X Team International and Principal with Boston-based Strategic Retail Advisors. You can reach Jonathan at [email protected] and learn more about X Team at xteam.net.