Top Four Takeaways from ICSC RECON 2016

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ICSC hosted its annual RECON event in Las Vegas last month. Hundreds of CBRE retail brokers were in attendance, including dozens from our Chicago office.

According to Joe Parrott, senior vice president, and Adam Foret, associate, these were some of the top retail trends that dominated the conversations this year.

1. The impact of retail mergers and closures. Mergers, acquisitions and closures continue to impact the retail market. The recent merger of Sleepy’s and Mattress Firm will take effect soon and have ramifications in markets like Chicago, where these types of retailers are known for paying top rents.

“There will undoubtedly be some overlapping stores in this merger and more space will come on the market,” said Foret. “While the typical mattress location is 4,000 to 5,000 square feet and may not make a huge impact on a centers overall occupancy, they are still known for paying healthy rents. The feeling at Recon was that owners should be prepared for closures or buyouts of the current leases.”

The market has also seen closures like Sports Authority, putting more anchor space back onto the market.

“Owners have taken notice of this latest closing and it has them taking a hard look at their current roster of tenants and identifying those that may be an issue in the future.

2. Improving omni-channel strategy.  The drive to implement an effective omni-channel strategy, which strives to present a seamless shopping experience, is leading to greater scrutiny of brick and mortar locations by retailers.

“As consumers continue to purchase items on line, brick and mortar locations need to place greater importance on how they interact with distribution channels,” said Parrott. “For example, in addition to getting goods to the stores, retailers must develop strategies to effectively handle online purchases that are returned to stores. Customers want this kind of interaction and it will help brick and mortar stores maintain and grow foot traffic.”

According to Parrott, this is leading landlords and anchor tenants to rethink and change their most important property needs.

“We could see centers evolve to where demand for pull-up lanes for pick-up orders are commonly required by anchor tenants, or, a need for short-term parking for convenient pick-up of goods purchased online takes much higher priority.”

3. Domination of QSRs. Quick service restaurants are still chugging along and expanding at rapid rates. Restaurants like Blaze and Nando’s Peri Peri, among others, continue to do solid business and lead the forward momentum in retail leasing.

“Consumers have really gravitated to quick service restaurants and continue to demonstrate a healthy appetite for the concept,” said Foret. “We are seeing these operations spur both new development and be a viable option for backfilling vacant space in infill locations. It’s a very successful market in retail right now.”

According to Foret, many of these QSRs are now exploring drive-through options or making them part of development requirements as well, adding a new element of convenience to the concept.

4. Little flexibility from tenants on space. In the past, tenants could be flexible on space if the location was ideal. Not anymore. As new retailers develop new concepts they are more likely to stick with a uniform requirement and not waver on space size. Deals are being scrutinized at a very high level and retailers do not want to take on any potential extra rent, or, stray from a designed prototype.

“Today, if a retailer is looking for 10,000 square feet, it has to be 10,000 square feet or very close to it,“ said Foret. “In the past, we may have seen flexibility ranging from 1,000-4,000 square feet for a tenant that size if it was an excellent location or one of the few available spaces in a market. That’s no longer the case. If the space size doesn’t come extremely close to the exact requirement, tenants are realizing it won’t make it past committee and won’t pursue the location. Getting tenants to think outside the box is very difficult.”

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