Wednesday, September 7, 2016

Retail Centers Evolving Away From Dependence On Department Stores

by Steve Lubetkin,
Department stores will play a less-pivotal role in retail centers of the future, as sales declines lead to foot-traffic declines. The good news is that other retail uses with better traffic will replace them and improve the sales prospects for such malls over time, he says.

“Trends take time, trends just don’t happen overnight, trends often take years or even decades to play out. One would be the decline in importance of what we call traditional old-fashioned department stores as being relevant in projects.”

As sales in department stores decline, traffic also declines. “You don’t tend to have lots of traffic and no sales, and vice versa,” he says. “We see that with Macy’s announcing closings in the Philadelphia area. People lament that, but they really shouldn’t, because the traffic they were generating has been on the decline for years, and what will replace them will undoubtedly be uses that create more traffic.”

Unconventional uses like fitness, food, and medical are likely to replace department stores in many retail mall settings, Gartner says.

“An office-shared concept like we work, will in theory bring as much traffic to a property as a mundane retailer,” he says. “It’s all about being relevant in today’s world. If we look at the history of the suburban mall, it was to create a climate-controlled version of downtown. Retail real estate is one of the few parts of commercial real estate where you have to lease space and attract the public to buy stuff. Office doesn’t have to do that.”

Restaurants will continue to play a key role in the transformation of retail malls, because the restaurant experience can’t be replicated online, adding that grocery stores offering prepared foods and malls with food trucks also are becoming popular. Fitness stores are also a rising element of the tenant mix, he says.

“Having versatile real estate is important. If somebody is developing a new project, the ability to have proper venting that only restaurants need is important. That’s hard on the ground floor of a mixed-use project. These are things we give advice to owners about. A restaurant will need about double the parking of conventional retail, because a restaurant has more people in its confines than a traditional retail store at any one time.”

 “Rents a holding, we’re seeing the reuse of a lot of buildings.” At Suburban Square Mall in Ardmore, PA, a former Macy’s building is being repurposed for multiple tenants, he says.

Entertainment retail, such as theaters, bowling, ping-pong, pool, golf stores, “getting people together in places and landlords liking it because it drives traffic,” will also be among the key trends, he says. Center City Philadelphia will announce tenants, projects, and deals this year, particularly in East Market and in the Gallery reimagining, Gartner says.

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