February 21, 2017
By Dennis Kaiser
Retail investment strategies continue to evolve as retailers adapt to meet shifting consumer preferences, as well as the game-changing challenge of ecommerce. CBRE retail investment expert Philip Voorhees shared insights into the ways investors are meeting those changes in Connect Media’s latest Q&A.
Q: What are the trends and synergies emerging between e-commerce and brick and mortar?
A: Leading retailers in all categories are exploring brick and mortar strategies. We expect ‘last mile’ online order fulfillment via existing bricks and mortar locations will be the big theme for 2017. Customers want their orders faster. The cost and challenge of acquiring and developing (or redeveloping) enough distribution facilities in densely populated areas is prohibitive; the infrastructure would be massive.
Q: What strategies do you see playing out as a result of the lack of available land?
A: Look for ‘box’ retailers to start thinking about the part of their existing space as ‘warehouse’ space that could be used for quick order fulfillment. We expect to see third-party fulfillment vendors moving into this space as subtenants and vendors for online retailers.
Companies incubated online should continue establishing online footprints in demographic areas that reflect the tastes and preferences of consumers oriented to these brands.
Q: Beyond the e-commerce, what are the big issues and challenges that retail investors are thinking about?
A: Already in 2017, Sears and Macy’s have announced 250 store closings. We expect more to come. With challenge comes opportunity. The non-core mall space presents the widest cap rate to Treasury yield in retail. This window of opportunity will begin closing, once debt becomes more readily available for these assets. Presently, the opportunity to buy at a massive discount to replacement cost (if not near land value) and return most of the invested equity in cash flow over 5 to 6 years feels compelling. Opportunistic investors are mapping strategies in the non-core mall space.
The rise of restaurants as anchors continues. For the first time in history, Americans spend more dining out than at grocery stores. The baby boom generation is spending the most in total, though millennials and gen-x’ers eat out more frequently (usually spending less). A curated array of restaurants provides an exceptional bulwark to competition from the internet, and also provides a ‘third place’ other than the home and office where customers can relax and unwind. I expect the current buzz about the viability of high rents will dissipate as the economy gains traction. Restaurants and retailers launch and fail every day. It’s evolution. It’s natural and healthy, not a reason for undue concern. Markets are self-correcting.
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