CRE Trends Are Solution for Some Struggling Tenants

October 14, 2016
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A report from the organization Counselors of Real Estate details the top issues it says are affecting the commercial real estate market. It notes that disruption of the traditional setup and purpose of shopping centers is a top concern. Changes are sending some retailers into a headspin to find new ways to stay afloat.

That’s due in large part to so-called “experiential” retail quickly taking hold, turning centers and malls that had been comprised mainly of storefront businesses offering lots of inventory into downsized “showrooms,” with shoppers purchasing most items from tenants’ online offerings. Centers also are featuring entertainment, farmers markets, and rotating pop-up stores to draw customers in, increasing foot traffic and the length of time they spend there enjoying non-shopping activities and opportunities to purchase locally produced merchandise.

Some malls are replacing big-box retail “anchor” stores with high-end food courts that feature smaller versions of popular restaurants that are set up elsewhere. And mixed-use experiences are popular; developers are combining brick-and-mortar stores with hotels, restaurants, and tenants that offer trendy activities popular with Millennials and Baby Boomers alike, such as bowling alleys. It seems that of late, uniqueness is being rewarded by the CRE market.

Concurrently, shifting demographics and the densification and urbanization of cities are both identified as key factors in changing the CRE market. Availability of transportation options and walkability have become crucial for some suburban centers to draw customers away from urban areas that are developed in a work-live-play model that offers little incentive for shoppers and diners to leave. And the move to higher density areas continues, as job growth and dynamic urban centers attract new residents and businesses, as many Millennials—the ages 18 to 35 crowd—are showing a preference for city living.

The report discusses the implications of these changes. Chief among suburban tenant concerns is the mounting pressure for their areas to become more “urban.” But while experiential centers and urbanization in some way threaten traditionally successful business models both in and outside of city areas, there’s also an opportunity for traditional retail as well as office centers if they work with and not against these trends.