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Value retail continues to be the industry’s hottest segment, with Dollar General, Dollar Tree and Family Dollar alone accounting for approximately 2,000 new stores.
have before so it is going to be bumpy to replace some tenants,” Wheeler said.
WINNERS AND LOSERS A strange mix of strong industry fundamentals, digital angst and the fact that all real estate is local, have made it challenging for those in the retail real estate world to accurately gauge the long term outlook. “The big question today is about malls and who will be the winners and losers. The values for anything other than A malls have moved down so the other big question is how deep is the demand for re-tenanting,” said Richard Latella, Executive Managing Director and Retail Practice Leader, Retail Valuation and Advisory with Cushman & Wakefield. “There will be more bankruptcies and closures, but it’s not the end of retail, just a major structural shift.” Latella leads a team of 75 people at Cushman & Wakefield whose job it is to understand all of the countervailing forces affecting retail and assign values to properties the same way a property appraiser does during the sale of a home. He’s in the camp that views retail and retail real estate as a highly resilient industry that knows how to adapt and will benefit from department store closures. “The department stores are paying virtually nothing for rent and we have moved beyond the time when a mall needs them as anchor tenants,” Latella said. New anchors have emerged that offer a way for center owners to repurpose space and add value for other tenants. Entertainment uses such as theaters and recreation are the most often mentioned uses. “We live in the experiential world,” said Greg Silver, CEO of EPR Properties, a REIT focused on entertainment, recreation and education uses, some of which are suitable for malls and other types of shopping centers. He also cautions that adding entertainment or other experiences isn’t a silver bullet for a center with underlying problems. “Entertainment makes good properties better, but it doesn’t fix bad locations that result in bad properties.” 30
Retail Leader.com SUMMER 2017
“Retailers are becoming smarter about their real estate decisions,” CBRE’s Famous said, noting the company’s Forum Analytics group can forecast within 10 percent a retailer’s sales for a location under consideration. They have to be smarter, because as David Green, Vice Chairman of Colliers International, said, “it is a really, really challenging and interesting time.” In his role at the global real estate services company with operations in 68 countries, Green understands it is important to discern between macro and micro issues when evaluating the retail world. “You can’t look at the entirety of retail and make assumptions. The macro doesn’t always affect the micro,” Green said. In other words, while there are certainly overarching trends affecting retail generally — the growth of e-commerce and shifting buying patterns — other trends impacting the industry need to be layered on. For example, some retail properties that cater to tourists have been negatively affected by the strong dollar, which reduces foreigners’ purchasing power. Retailers’ costs have also increased in many areas and low interest rates have pushed up the prices of many of the assets held in REITs that generate income. “You don’t normally have a convergence of so many factors affecting retail,” Green said. “We are in a phase of disruption and repurposing.” On that point, there’s no argument from ICSC’s McGee, who expects next year’s RECon will be bigger and better than this year’s as the industry continues to evolve, shifting away from the traditional “mall” emphasis to a new way of thinking. “I sometimes think the word retail real estate can be a little bit limiting because it has really become consumer real estate and all the things that includes such as goods, services, entertainment, food and beverage — all those things consumers want,” McGee said. “The word retail can conjure an image of only a store.” RL
RECon set another attendance record this year with 37,000 people on hand to network and discuss the future of physical retail.