For many industry names, there is a bright future in retail, despite floods of headlines predicting a coming death. As big-box anchors and department stores scale down, many malls and shopping centers are being joined by new, experiential tenants.
“Store closures grabbed the headlines and drove the retail apocalypse narrative in 2017 and into 2018,” said Deborah Weinswig, managing director of FGRT (formally Fung Global Retail & Technology) in CNBC. However, “total in-store sales continued to grow, yielding an uplift in sales densities across US retail,” she said. “Moreover, occupancy rates in open-air shopping centers and superregional malls [more than 800,000 square feet in size] proved resilient.”
In particular, open-air centers, (think Dick’s Sporting Goods, Whole Foods Market, Kohl’s, Dollar Tree or TJ Maxx) are considered “most resilient retail real estate segments,” according to FGRT. Some regional malls have seen retailers take flight or break leases, but not these businesses, which tend to stay steady while taking up an average of 400,000 to 800,000 square feet.
“GGP and others have been dialing down their exposure to apparel specialty stores, and a number of these companies have focused on grocery-anchored centers or sought to bring in more grocery tenants to their existing centers,” Weinswig wrote.
Grocery stores seemed a safe haven of real estate developers wanting to diversify their assets, but concern is building that this trend could reverse as more shoppers order groceries online.
The majority of store closures last year came from so-called softline retailers, meaning clothing brands, according to a report by FGRT. Regional malls have been hurt the most from their peer group while businesses like Rue21, Ascena Retail Group and Gymboree close their locations.
Variety stores, warehouse retailers and dollar stores have boomed as department stores cut back. Beyond that, new tenants are changing the landscape even more. Lawrence Group, a developer of real estate with St. Louis offices, just revealed it plans to anchor a mixed-use development called City Foundry STL with an upscale “eatertainment” venues Alamo Drafthouse and Punch Bowl Social.
“A lot of the retailers that we are talking to right now are saying, ‘Once you deliver the food and entertainment tenants, then we are interested,'” Lawrence Group Chief Executive Officer Steve Smith said to CNBC. “That’s led us to landing some of these names (i.e. Alamo and Punch Bowl) earlier in the process.”
A German beer hall and a lounge for steakhouses will join the local food and beverage options. Dining seems to be an effective blueprint for retail real estate developers today. These are joined by some experiential tenants and sought after brands like Lululemon, Untuckit, Warby Parker, and Ulta.
Overall, St. Louis’s midtown area – home primarily to warehouses and other industrial locations, is experiencing a rebirth, with retail helping to shape the surrounding communities, and this trend is mirrored in locations all across the U.S.