Colliers’s recent Retail Whitepaper examines what is driving retail recovery and what will make retailers successful in the days ahead. A summary of the paper follows:
Retail’s dependence on a healthy economy and a fickle consumer makes it vulnerable, but as an investment category retail real estate presents attractive opportunities. For property owners, municipalities, and investors committed to the sector, opportunistic investments can materialize by thinking differently from the herd. This type of forward-thinking analysis involves digging beneath the top-line numbers to understand the factors and conditions necessary for asset performance and values to recover further, and how those elements will favor certain retailers and markets. This white paper aims to identify and analyze successful investment and branding strategies, and the retailers ahead of their peers in executing them.
- Retailers’ corporate success now hinges far less on absolute price than it does on corporate strategies for reinvesting in technology, elevating the in-store experience, and redefining the service aspects of the retailer’s offering.
- Technology investment takes the form of channel diversification: improving and integrating brick-and-mortar, online, mobile, and catalog operations.
- Real estate investments include opening new stores, experimenting with smaller prototypes and upgrading existing locations.
- While “Location” has always been the most important to real estate success, quality tenants are proving equally important at separating a retail project from it’s competitors.
- Retailers “ahead of the curve” in reinventing their physical spaces elevate the shopping experience to focus on every aspect of their business that matters to their customer.
- Retail is becoming more about service and less about “stuff.”
- Successful landlords will be those that remain focused on maintaining a unique tenant mix and be willing, if necessary, to accept lower rents short-term to achieve the long-term payoff of owning a commercially viable property with stable (or rising!) occupancy rates and cash flows.
- Another option is to develop tenants internally: incubating new retail concepts that will eventually take space.
- And, landlords and owners (and their lenders) have to be willing to demolish vacant or under-utilized spaces, foregoing short-term cash flow, to create new retail zones.
- Metro markets poised to outperform in the next decade exhibit one or more of the following attributes:
- An improving housing market: For May, the Five states with the highest number of improved markets are Texas (11), Florida (10), Michigan(8), and Pennsylvania/North Carolina/Iowa (6).
- Potential for favorable demographic shifts: The big shift will likelybe demographic, as the 78 million Millennials move into their prime household formation years and and a way to move out of their parents’ basements.
- Ability to cultivate job growth and a skilled labor force in energy-and knowledge-based industries: Job growth is occurring in areas dominated by industry sectors that either were more resistant to the recession or began to improve earlier in the recovery like powerhouse Texas cities of Houston and Dallas.
- And proximity to intermodal infrastructure: Big changes are coming for metro areas proximate to intermodal infrastructure, such as deep-water ports and rail lines, as macroeconomic dynamics shift import/export demandand the Panama Canal expansion nears its scheduled 2014 completion. Current growthtrends favor East Coast and Gulf ports.