Consumer shopping trends have changed significantly over the last few decades. With the introduction of ecommerce and added convenience of strip malls, many traditional malls and big-box stores have had to make major changes that have dramatically impacted retail real estate investors.
Changes in Parking Requirements
Due to the rise in mixed-use commercial properties, such as strip malls, customers don’t need sprawling parking laws or tall parking garages. Each of the businesses in these centers have different peak hours or days, so fewer parking spaces are necessary per square foot of retail space.
In addition, public transit and ride-share services have expanded rapidly, so fewer people are driving and parking. However, this expansion has resulted in the need for pickup and drop off areas.
Self-driving car and other future innovations may reverse this trend. Therefore, developing facilities with adequate, but not too much, parking is a challenge.
Lease Term Adaptations
Traditionally, retail shops leased property for one or more years. When their leases were up for renewal, their tenants would either leave or sign another long-term lease. Today’s retail markets are more short-term. For example, popup restaurants, holiday stores and startup companies require short-term leases.
In addition, percentage rent leases are no longer the norm. Ecommerce has put a strain on brick-and-mortar retailers, so as their sales decrease, so do the landlord’s rent payments. In fact, many locations are only used for product displays or returns, so customers are required to make their purchases on the company website. Even when customers purchase their products online and pick them up in the store, the sale is considered ecommerce and not store revenue. Therefore, it is likely that percentage rentals will change in the future.
Retail Space Usage Changes
Many retail real estate holdings are now used for mixed-use projects. For example, one piece of land will be divided into multiple smaller retail spaces. Some retail spaces are even being converted to offices or residences. Mixing these uses decreases the risk for the investor while increasing the profitability of the property. For example, ecommerce has not significantly affected the grocery market. Although this may change as technology adapts and advances, today’s consumers need to go to grocery stores for fresh produce and perishable goods.
Retail investors have adopted a live-work-play strategy. Many of these spaces have grocery stores and family entertainment in addition to gyms and retail stores. Some even provide medical services, microbreweries and restaurants.
Today’s trends can change in a matter of a few years with the advancement of technology. Therefore, as you invest in retail real estate, you need to remain current on the retail trends in your area.