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By H. Gary Gabriel Changing Face of
Retail Likely to Spur Real Estate Revolution
W
hen it comes to retail real estate invest- ment, there current-
ly exists a massive spread be- tween what the capital markets community wants (i.e. grocery- anchored properties) and the category of “everything else.” That said, investors in the near term are going to have to begin looking at product differently, based on how people will shop in an increasingly ecommerce world. In the late 1990s, at the beginning of the Internet age, everyone decided that retail as we know it would cease to exist. Webvan would eliminate the need for grocery stores altogether. We all know how that story ended. Retail real estate clearly has not become a “dinosaur,” but ecommerce does continue to chip into traditional brick-and-mortar sales. According to Forrester Re- search, Inc., ecommerce sales in the United States will reach $262 billion this year, up 13 percent from 2012 and account- ing for 8 percent of total retail sales. The Forrester report fur- ther predicts that ecommerce will grow at a compound an- nual rate of 9 percent through 2017. To compensate, retail formats are on the cusp of dramatic change, in terms of what a prototypical store will look like from a size perspective and how goods will be delivered to consumers. How will e-tailing, traditional retail and consumer shopping patterns intersect moving forward? The answer remains to be seen, but it likely will create an interesting shift in demand for what today are considered to be second-tier
assets. For example, the Internet has measurably impacted sales of hard goods at supermarket grocery stores, which is chal- lenging this favorite category. Chains like A&P, ShopRite and Safeway, to name a few, are in- corporating more perishables, organics and other items that cannot be ordered online. High- end and specialty concepts, like Whole Foods, Trader Joe’s and green grocers, are expanding rapidly but in smaller foot- prints than their traditional competitors. Further, it used to be that shopping centers with lots of restaurant tenants or gyms were considered “troubled.” However, these categories and other types of non-traditional tenants (doctor and dentist offices, veterinarians, etc.) are becoming favored because they will continue to draw pedes- trian traffic despite the growing popularity of online shopping. Lifestyle changes may also begin to impact the way con- sumers shop. More and more, people are sitting behind their computers to work. Social me- dia is becoming a primary form of human interaction. However, the fact remains that relation- ships are formed by interper-
sonal meetings. As society be- gins to crave more face-to-face interaction, we may well see a transformation of retail into a quasi center of community. What kinds of tenants – and settings – will create that town center kind of environment? The bottom line is that the retail real estate is headed for a revolution. What has worked in the past will not remain the be- all and end-all. Of course, the retail real estate landscape is not going to change overnight. Investors today remain cau- tious in terms of where they will place their dollars. Conventional institutions, especially, remain firmly “in- side the box,” chasing best-in- class, grocery-anchored assets. However, private capital, op- portunity funds and the like can – and should – be looking at other spaces, which are priced more advantageously for the buyer. In short, getting away from the beloved and consider- ing the unloved may well reveal opportunities that will work just as well or better as retail’s next generation unfolds. H. Gary Gabriel is vice chairmanof theMetropolitan Area Capital Markets Group of Cushman & Wakefield, in East Rutherford, NJ. n
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