ICSC Special Report: Retail’s Big Space Race
On the massive exhibit floors of New York City’s Javits Center, there was plenty of buzz this week about one of retail real estate’s most pressing issues: how to find elbow room for retailers in one of the tightest markets in recent memory.
As retail’s postpandemic rebound continues on multiple fronts, the challenge is to find space that’s not only available, but helps retailers expand strategically, said professionals during ICSC’s annual New York City dealmaking show.
In some respects, one of the biggest challenges is a good one to have. Continuing its rebound, demand is climbing across categories. Overall non-mall occupancy is at 97 percent, a 20-year high.
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“The reason there’s not much absorption is because there’s not a lot of available space,” said James Breeze, vice president of global industrial and retail research at CBRE. “We’re coming up to a point where rent growth is going to start to accelerate next year.”
The roster of prospective retailers angling for expansion is varied. A diverse group of foreign companies in apparel, food and beverage and experiential retail is in the mix, reported Barrie Scardina, president of Americas retail services at Cushman & Wakefield.
“Some are well-financed and ready for gateway cities,” she noted. Others are less experienced, and better off starting out in attractive secondary markets, such as Nashville, Tenn., Charleston, S.C., and Naples, Fla.
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The widespread supply-demand imbalance is prompting retailers to bypass conventional formats. Companies must sometimes be willing to depart from their generic prototypes; if the standard space is 50,000 square feet, then 20,000 square feet available in a good location may be the best choice, said Anjee Solanki, national head of Colliers’ retail services and practice groups.
New options for retail locations
Untraditional retail centers can sometimes be the best places to grow. Some brands that normally set up shop in regional malls or open-air lifestyle centers will find space in neighborhood shopping centers. Show attendees pointed to that trend as a sign of increased willingness to meet customers where they are.
More answers to retail’s space squeeze may emerge from downsizing plans, such as Walgreens’ announced intention to close 1,200 stores over the next three years. Solanki suggested that the sizes of those stores might make some of them attractive to expansion-minded grocers. In March, one such firm, Aldi, announced a five-year plan to open 800 new stores.
Another sign of consumer interest and the strength of brick-and-mortar is the planned return of several recently defunct brands to physical stores, under new ownership and in new formats, noted Kristin Mueller, president of retail property management at JLL. Bed Bath & Beyond, for example, is on track to return to stores in 2025, in spaces showcased by The Container Store.
Competition for space, and the high stakes of expansion, call for an intentional mindset. Those priorities are placing consulting services at a premium. “We’re definitely seeing retailer look to us for how they can continue to grow,” Scardina reported. Decisions about when and where to expand must be highly strategic and draw on sophisticated analytics. As a result, she added, “That advisory work is more important than ever.”
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