Mon. Sep 26th, 2022

The COVID-19 roller coaster took many brick-and-mortar retailers for a ride in 2020 and 2021, with notable department stores, restaurants, and apparel stores shuttering permanently. But after 24 months of restrictions, formerly homebound consumers are ready to mingle—and spend. Pent-up consumer demand is boosting retail sales across all sectors, leading to healthier fundamentals for retail real estate and a new era of brick-and-mortar shopping.

Call it a comeback

When looking at all retail properties in aggregate—including neighborhood, strip centers, malls, and freestanding retail—leasing activity is gaining steam. According to JLL’s Q4 2021 United States Retail Outlook, the change in occupied retail space reached positive 76.1 million square feet in 2021, a significant turnaround from the negative 28 million square feet posted in 2020.

While retail sales are up in all sectors, the retail recovery has not happened as evenly. Americans are shopping closer to home, with growth in strip and neighborhood centers seeing the strongest rent growth among retail property types. Sunbelt markets with strong population growth like Atlanta, Nashville, and Phoenix are also leading retail’s return, especially compared to urban and coastal markets like Boston and Los Angeles.

The kinds of stores that are moving in also reflect changing shopper preferences. New leasing activity is being driven by smaller tenants, bringing the average retail store size down to 3,000 square feet—the lowest in a decade. Discount retailers like The Dollar Store and value fitness offerings like Crunch and Planet Fitness are expanding, reflecting consumers’ focus on belt tightening that started during the pandemic, while retailers like Macy’s, Target, and Burlington are focusing their growth on smaller, more efficient stores.

Fashion, food and fun revive the mall

All retail sectors in 2021 showed year-over-year sales growth, with two of the hardest-hit sectors—apparel and food and beverage—making the most dramatic gains of 41.3% and 29.5%, respectively. Consumers have ditched their pandemic sweats and declared a new love affair with ready-to-wear apparel, which expanded as a category for the first time in three years. Digital-native brands like Allbirds and Warby Parker are embracing physical stores, where they can create a greater emotional connection between customers and the brand.

Mall restaurants are crowded again, and shoppers are increasingly asking for higher quality, white tablecloth offerings that provide an experience they can’t or won’t replicate at home. Restaurant spending outpaced grocery spending in May and is expected to do so more frequently in the months to come.

Mall owners are injecting creativity into their environments to draw crowds and stay competitive. The act of shopping may soon become secondary to the experience where food, entertainment, and unexpected amenities are the main attraction. Rotating pop-ups are bringing fun and tactile experiences. High-quality live performance is a must-have staple. Ghost kitchens are giving shoppers culinary diversity and tremendous flexibility in how, where, and when they consume their meal of choice.

Mall REIT Simon Property Group recently announced its partnership with Kitchen United to roll out its “Grab Go Eat” concept currently being tested at Roosevelt Field Mall in Garden City, NY and Del Amo Fashion Center in Torrance, CA. “Grab Go Eat” offers the ability to order from multiple restaurants in a single transaction via web, app, or kiosk and receive that food at any table, seating area, or store in the mall—meaning, you can soon be enjoying French fries without having to leave the dressing room. It remains to be seen how wholeheartedly consumers will embrace these out-of-the-box food concepts but for now novelty and surprise are critical factors driving retail’s rebound.

The future is (mostly) bright

After 70 retailers declared bankruptcy in 2020, we are now enjoying the lowest levels of retail bankruptcy filings in the past five years, contributing to a continued decline of store closures. However, not all malls are positioned to share in this resurgence. Best-in-class, top-performing mall assets like The Village of Corte Madera in Marin County, CA and Tysons Galleria in Virginia will survive and thrive with top-tier retailers in place, while many Class B and C malls, those that lost three or more anchors, will likely shutter and be repurposed into other uses like education and medical.

Urban centers have much more ground to make up than their suburban counterparts, but as shoppers become more comfortable with their safety in a retail setting, we will see foot traffic and sales steadily increase. The National Retail Federation released its updated forecast and stated that although labor shortages could hinder the rate of growth in the short term, retail sales are still expected to increase by 10.5% to 13.5% in 2022.

It’s exciting to ponder all that retail has to offer the American consumer as we emerge from the fog of Covid. Shopping is not just a convenient way to accumulate goods. Retail settings now offer an opportunity to socialize, reenergize, and be inspired.

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