January 19, 2018
What will retail look like in 2018? Next week at Connect Retail West hear what innovators in the retail space say is drawing today’s consumers into spaces, how to shake up norms, and stay ahead of the curve. Top players will discuss innovation in experiential retail, neighborhood centers, and in retail investment on January 25th at Hurley Surf Club Pacific City in Huntington Beach, CA.
In Connect Media’s latest 3 CRE Q&A, Passco Companies’ Todd Siegel, a panelist at the conference, shares the biggest trends driving West Coast retail markets, highlights investor strategies and notes where capital is being placed.
Q: What are the biggest trends driving retail markets across the West?
A: Entertainment, food and services are the three major trends that continue to drive retail. From regional malls to strip centers, properties are incorporating all or some of these elements in ways that make sense to satisfy the demand of the hyper-local market and what it can support.
In general, people desire centers offering services that meet their ‘everyday needs’, as well as providing an experience and ‘personal touch.’ The concept of retail centers meeting the everyday needs of consumers is certainly not new and has remained true for decades. That said, today, this term has evolved to refer to meeting needs in ways that the internet cannot.
For example, while the demise of the grocer has long been predicted, this hasn’t transpired as people thought. While “last mile” grocery delivery options such as AmazonFresh have been successful, many people desire to pick out their fruits, vegetables and meats themselves through sight and touch. Further, even those who utilize delivery services for groceries still require brick-and-mortar for last-minute dinners and missing ingredients. Centers with grocers and other daily needs tenants continue to redevelop to meet these consumer needs.
Q: How are investors adapting to these trends and the challenges facing the retail sector?
A: Investors are still approaching retail with caution, but those who recognize the opportunities in the sector generally fall into two groups in regard to how they identify retail investments:
– Investors who are attracted to Class A, main-and-main, high-quality centers with credit tenants. These investors are willing to accept lower, but stable, returns.
– Investors who recognize risk and reward in Class C retail. They are attracted to value-add repositioning opportunities, and accept a higher cap rate to justify the risk. The goal is to reposition the center to meet the current trends in the market.
Q: What are some examples of retail investments that Passco favors and why?
A: We are bullish on retail centers that offer value-add opportunities, and can be repositioned into modern shopping, dining and entertainment centers through aesthetic upgrades and re-tenanting with a stronger, more relevant tenant mix.
These properties offer strong returns, although they can be hard to find. We have found that some retail owners have been hoping for a rising tide that raises all ships, when, in reality, the repositioning of their properties is necessary for sustained success. These owners often don’t have the expertise, desire or capital required to execute on a repositioning strategy. We look for these types of opportunities when they decide to sell, or partner up with an experienced investor to reposition their property.
For comments, questions or concerns, please contact Dennis Kaiser