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Six Takeaways from RECon 2018, Day One

The retail real estate industry's largest convention was dominated by one major theme: change.

The first exhibition day at the International Council of Shopping Center’s (ICSC) annual RECon conference in Las Vegas—the largest convention for those in the retail real estate industry to meet, network and make deals—was dominated by one major theme: change.

And the change, according to several experts on the convention floor, appears to be coming from many different directions: the rise of non-traditional retailers, the demise of traditional chains, the necessity to rethink retail concepts and how people will shop and live in the future.

Despite these question marks, many industry insiders described the show’s atmosphere on Monday as optimistic, citing these challenges as opportunities for creativity. Schedules for meetings were as full as in previous years, they said, and booths appeared to bustle with activity. “People are positive. Retail sales are good,” says Holly Rome, executive vice president and director of national retail leasing for real estate services firm JLL.

Still, some other retail real estate professionals said attendance appeared lower than during previous years, noting some exhibition space was empty and that not as many traditional retail tenants—mainly fashion retailers—were exhibiting this year. However, mall giant Simon Property Group had booth at the conference floor, in addition to holding off-site meetings, after years of holding RECon meetings elsewhere. And the reality of the challenges facing the industry—e-commerce competition and large retailer bankruptcies, for example—are on attendees’ minds. “I think people are concerned,” says Gary Albrecht, co-chairman of the real estate department at law firm Cole Schotz.

Here are some key trends retail real estate experts noted on Monday, the first full day of exhibitions.

  1. Tenant mix is more critical than ever. “It used to be location, location, location. Today it’s location, location, location and tenant mix,” says Alan Esquenazi, partner at Florida-based real estate services firm CREC. Creating the right tenant mix was top of mind on Monday, and increasingly, that mix includes a range of different categories of tenants, from hospitality to medical services. “You have to look at your property with new eyes,” Rome says. This includes figuring out how to handle retailers that vacate large tracts of space—like Toys ‘R’ Us—and those that need to reconfigure how much space they really need. However, Joseph Cosenza, vice chairman at the Inland Real Estate Group, says retailer rightsizing can be a positive development as well. Cosenza points to Kohl’s move to reduce space and partner with grocer Aldi, which has proved a success, as well as the fact that some retailers, like cosmetics seller Ulta and Amazon-owned grocery chain Whole Foods, are expanding. Retailers have to focus on modernizing their physical spaces and having a product that can’t be bought with the click of a mouse through Amazon, Cosenza notes. His one piece of advice to those navigating these changes? “Don’t panic, get smart.”
  2. Does everyone really need a food hall? Food halls were also a popular topic on the convention floor as a way to bring experience, uniqueness and local ties to a property. But it might not be the solution for all centers, says Grant Gary, president of brokerage services at The Woodmont Company, a real estate development, brokerage and leasing firm. One effect Grant’s firm has seen is that food halls, in an attempt to bring in more customers to a shopping center, can lead to a pullback in sales at that centers’ restaurants. There may also be other food halls being planned at competitor sites. “You really have to do the homework to see how sustainable a food hall will be at the end of the day,” he notes.
  3. There appears to be an increase of international retail chains’ interest in expansion. Several experts noted the strong international interest at the conference. “People still need a place to put money,” says Anjee Solanki, national director of retail services at Colliers International, a real estate services firm. Of international retailers moving to new markets globally, food and beverage companies top the list, says David Close, EMEA cross border director at real estate services firm CBRE. Some top expanding companies include Joe & the Juice, Leon and Wasabi—players that can provide healthy food quickly, Close says. While markets like Dubai and Hong Kong are top among brands seeking to expand, U.S. cities like New York are also coveted, he adds.
  4. Landlords want to own and control their data. This means that some are exploring acquiring data centers to keep on site, says Solanki. This has two benefits: it helps to guarantee productivity for POS operations and allows landlords to collect data on customers and own it. “Everyone wants to be their own master of their own market and market share,” she notes.
  5. Hotels are increasingly being incorporated into retail sites. This was the message from Eric Jacobs, chief development officer, North America, of Marriott International’s Select Service brand of hotels. Marriott and mall owner Simon recently announced adding five hotels to Simon’s retail centers, and Jacobs says there are more deals in the works with Simon and others. The industry, he notes, is increasingly looking at hotels to fill the voids left behind by big-box retailers and to cater to a customer base that craves walkability. “This is just an evolution and paying attention to what our consumers are saying worldwide when they travel,” Jacobs notes.
  6. It may be time to sell. At the show, there was a sense that owners were seeking to shed retail assets now, when they may be able to get a good price before interest rates rise, Albrecht says. This was particularly the case for non-core assets, he notes. “They feel like now is a good time,” he adds.
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