The Orange Report – 2019 Q4

The Orange Report – 2019 Q4

2020 Retail Predictions

A look at the factors affecting the retail industry in the next year.
LEASE RATE - $12.82
VACANCY -5.5%

RETAIL

LEASE RATE - $20.54
VACANCY - 6.3%

OFFICE

LEASE RATE - $5.43
VACANCY - 4.8%

INDUSTRIAL

Perhaps the most indicative trait of the Information Age is the ever-accelerating pace of change. Like so many industries, the retail world has been hit with a shockwave of Amazonian proportions, disrupting consumer behavior, economic policy, technology, and social norms. However, when a pendulum swings dramatically in one direction, it eventually swings back in the direction from which it came, drawing itself slowly toward an equilibrium. The retail pendulum may never reach a perfect balance between where we were decades ago and the height of emerging technology, but there are noticeable signs of movement toward a new middle ground, a balance between traditional retail habits and modern conveniences.
The Country Club Plaza has long been the crown jewel of Kansas City Shopping Centers. A review of its newest tenants is a telling study in retail trends as a whole.
Online retailers opening traditional retail locations
Warby Parker, Casper Mattress, UNTUCKit
These emerging brands, all born and raised online, are joining many legacy retailers in recognizing that a strategic brick-and-mortar presence is a key component to maintaining customer satisfaction and profitable last mile logistics.
Smaller format stores
Nordstrom – Opening 2021
The high-end department store is moving from its current 200,000 sf space inside Oak Park Mall to a newly constructed 122,000 sf store on the Plaza’s west side. This follows a national trend of Nordstrom and other similar retailers opening smaller stores that leverage “an omnichannel shopping experience, more aligned with today’s shopping patterns.”
Entertainment and Experiential Retail
Punchbowl Social
This restaurant and entertainment venue, featuring everything from bowling to craft beers to karaoke, announced plans to open on 47th Street in 2020. Shopping centers across the country are evolving into destinations offering experiences in addition to shopping. These entertainment-focused concepts can be the driving force in attracting consumers the way department and specialty stores were in the past.
Anchor Restaurants
True Foods, Capital Grille Relocation, Shake Shack
In addition to experiential retailers, strong, unique restaurants have adopted an anchor role in shopping centers. The right dining options can drive both customer traffic and co-tenancy.
Alternative Retailers
Green Grove
This new CBD retailer is representative of the emergence of health and wellness as an important piece of the evolving tenant mix. From new retailers within the wellness field (think marijuana) and traditional health providers moving out of stuffy office buildings and into prime retail spaces, we’re seeing a whole new crop of retail tenants that never would have existed in a shopping center twenty years ago.
As the retail world has worked to steady itself over the last few years, new supply has ground to a halt for all intents and purposes. Overall retail absorption in the US remained positive, though moderate in 2019. Research in most major US markets forecasts continued positive absorption in 2020 as well as moderate rent growth. More retail stores are opening than closing.
Generation Z, born between 1997 and 2010 and never without internet access, prefers to shop physical stores more than their predecessors, both Millennials and Generation X. Gen Z-ers value positive personal experiences, a chance to disconnect from technology, and a seamless shopping experience where purchases originating online can be fulfilled in-store. According to a recent study by A.T. Kearney, 81% of Gen Z prefer to shop in stores and 73% like to discover new products in-store. This shifting mindset of our youngest shoppers is clearly evidence of that pendulum beginning its retreat towards balance.
As the pendulum continues to ebb and flow, the retail world (as well as most other industries) is being re-arranged at breakneck speeds. As with any disruptive change, certain retailers and properties face obsolescence, but many well-located and well-managed projects are successfully adapting. The “Retail Apocalypse” headlines are fading, and the new equilibrium is revealing itself.