Attendees at the annual ICSC New York Deal Making Conference taking place this week at Jacob K. Javits Convention Center insist the negative headlines surrounding the retail sector are mostly misconstrued. The overall mood at the ICSC event was positive, with industry insiders expecting an uptick in investment sales activity next year. Here are some main takeaways from the conference:
- Despite there being a real “dry spell” in terms of investment sales activity in the retail sector in recent months, expect deal volume to increase in 2020, says CEO of regional mall REIT PREIT Joseph Coradino.
- Dining, entertainment, fitness, co-working and medical concepts currently drive the most customers to a retail center, says Coradino. Expect these categories to continue growing in the next year.
- Meanwhile, Tom Londres, CEO of real estate services firm Metro Commercial, says retail center owners are becoming open to more flexible uses, including adding medical concepts, fitness or multi-use residential. Many retail centers still sit on some of the best sites in the country, with high visibility, ample parking, etc., so non-retail tenants are interested in them. On the other hand, mid-priced apparel brands, casual dining and office supplies chains are expected to shrink in 2020.
- Selling a regional mall somewhere out in the country remains difficult in today’s environment, while a retail asset in a key location should find a buyer, according to Londres. Higher quality retail real estate is getting more valuable, while lower quality assets are becoming more stagnant, he notes. Another reason why some retail owners struggle to find a buyer is because the debt market for retail acquisitions remains very tight, says Greg Maloney, president and CEO of JLL Retail.
- Grocery-anchored shopping centers remain one of the most popular in the retail sector, according to Londres. Jeff Edison, CEO of Phillips Edison & Co., an internally-managed REIT, also pegs grocery-anchored assets as the ones to look for.
- The retail sector is changing, and landlords will have to adapt to new consumer preferences. Still, we are in the early stages of receiving and understanding this feedback, says Edison. Mike O’Neill, executive managing director at Cushman & Wakefield, says despite the sector being slow to change, the retail industry has already shown an ability to adapt to new realities, and the retail sector as a whole still see value in having bricks-and-mortar locations.
- The food-and-beverage category continues to expand. For this reason, not only are food halls on the rise, but retailers are beginning to add restaurant components to their stores to capitalize on this trend. Macy’s flagship store in Manhattan’s Herald Square features a 260-seat restaurant, while retailers including Nordstrom, Saks and Tommy Bahama also provide food and beverage options inside their stores. Adding this component largely pays off—for example, Tommy Bahama’s stores with restaurants earn twice as much revenue per sq. ft. as those without restaurants, according to JLL research.