Retail’s Rampant Revitalization (Part 2)

02/13/2017

While our last blog discussed the latest trends in commercial real estate, part 2 of our Senior Manager Shaun McCutcheon’s report on the retail sector in the United States provides insight into how developers can be successful in today’s ever-changing world. Successful retail development is still possible—the housing rebound that occurred over the past five plus years comes with a renewed demand for new retail centers in select locations. Urban/infill areas also have a need for some expansion and storefront “facelift” improvements, which has proven to increase occupancies and lease rates in many cases. Based on our research in the feasibility of new commercial and mixed-use developments around the country, the following concepts have proven to be the most effective:

  • High visibility, high traffic locations.  As a rule of thumb, anchor retailers want to be located on streets with at least 20,000 vehicles per day, and 30,000+ vehicles per day is ideal—a major intersection with two roads that each have vehicle counts in this range is even better. New retail centers that lack these traffic counts can still emerge if other factors exist, such as freeway visibility/signage (freeways often have 100,000+ vehicles per day), or planned/under construction roads that will ultimately increase traffic counts.
  • Locations with “360 degrees” of rooftops. Optimal locations for retail centers are those that offer residential concentrations in all four quadrants.
  • Serve the daily needs. A focus on tenants that offer services (gym/yoga/spin, hair/nail/day spa), pet care, dining and grocery stores (frozen and perishable foods) are essential to visit in person rather than shopping online.
  • Income levels are a factor but don’t necessarily dictate whether retail development can occur or not.  Naturally, higher income levels are preferable to attract retail tenants to a new center, but it is also possible to develop in lower income areas. Discount retailers such as Big Lots, Dollar Tree, Ross and Marshalls are expanding and leasing space in newly constructed centers in select high growth/low income locations, paying higher rents than in dated centers.
  • Make it interactive.  Big box stores can still thrive by offering an interactive experience and creating synergy with their online platform.
  • Share the parking with a tenant mix that utilizes parking at different times of the day. In urban mixed-use projects, parking is a concern and the amount of spaces required is often an issue. It is ideal to plan a tenant mix that uses parking spots at different times of the day—for example a bakery and a coffee shop could be problematic as two tenants in a small project with a few street stalls, as would two restaurants that focus on lunch and dinner crowds. Ideally, a coffee shop and restaurant would be two complimentary tenants to share parking spaces at different times of the day.
  • Consider alternative commercial uses in “B” locations. Uses such as self-storage, child care and religious facilities are in demand in high growth areas, and don’t necessary require being located at the “A” commercial intersection. These uses should be considered if a commercial parcel is relatively large and traditional retail needs are already being met by existing storefronts.
  • Allocate space for temporary (dining) space as an area evolves. The explosion of food trucks specializing in a variety of cuisines has changed the landscape of restaurant space in the most hip and trendy US cities (Portland and Austin, for example). The concept is increasing in popularity elsewhere, and can be adapted to growing suburban areas that need these services but may not have the population levels to justify vertical development of a shopping center (yet).

With the elections over, consumer confidence stable and incomes increasing, there is hope in the world of retail development, despite formidable competition from shopping on our phones and laptops. The key will be focusing on the best locations and providing space for tenants that offer goods and services that cannot be replicated via online shopping.

Please contact us to discuss how we can help with your next commercial/mixed-use development.

Shaun McCutcheon, Senior Manager – Advisory Charlotte
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