The Future of Retail Real Estate

The past years have been tough for retail. From losing business to digital channels to experiencing uncertainty due to the ongoing COVID-19 pandemic, most retail real estate establishments face difficulties and risk closure. What does it mean for retail real estate? Read on to know what you should be looking for as a retail real estate investor heading into the future.

Shutdowns and closures of physical retail locations are an accelerated trend in brick and mortar locations. According to the International Council of Shopping centers, ICSC, 9,800 retail stores, including restaurants, and clothing retails, closed in 2019. This number was predicted to increase in 2020, with the possibility of over 20,000 to 25,000 retail shops closing permanently by the end of 2021.

It’s hard not to worry about the future of retail real estate given the challenges it’s facing at the moment. But the future is bright! There are tremendous growth opportunities awaiting retail investors in the future. Below are growth opportunities to look out for in the future of retail.

Retail Sales Aren’t as Low as They Seem

Although many retailers are bracing for the worst and shutting stores, current retail owners and investment firms may find some comfort in the fact that the current retail sales aren’t as low as they seem. What’s more, rent collection appears to be stabilizing, with major retail chains such as salons, fitness retailers, and home improvement stores paying an increased percentage of rent owed during the pandemic compared to other years.

Retail Tenant Profiles and Users Are Changing

There are potential opportunities in opening new locations. New business locations translate to increased overall revenue. Major retailers have dedicated specific divisions of their companies to identify the most profitable locations for their business. Profitable business sites include storefronts where businesses can derive traffic and drive sales.

Re-Leasing and Re-Positioning Opportunities

Given the statistics on previously closed stores, many well-located vacant retail spaces are prime for a lease-up of newer and more contemporary uses. The spaces can also be re-positioned to different property use altogether. The locations also offer a massive opportunity for well-capitalized investors looking to leverage prime locations to change the use of retail assets into in-demand product types like industrial or multi-family projects.

Retailers should make use of store closures and re-position them into alternative uses. They should also consider re-leasing them to new retail users working towards meeting consumer preferences and market demands.

Malls are another big conversion opportunity for retail space. They draw consumers from high traffic and densely populated areas to shop in one centralized shopping location. With enough space and relatively open floor plans, there is no shortage of re-positioning opportunities for investors looking to acquire failing regional malls.

Retail Leasing Is Changing in the Short and Long Term

As we advance, correction leases signed in 2020 and beyond for the retail tenants who survive and continue expanding during and after the current market are likely to look different from those in past years. With many retail property owners struggling as occupancy drops at their centers, each month that passes in this environment could create a market whose negotiation would favor retailers.

Additionally, personal guarantees will be harder to come by for smaller tenants, making it more difficult or impossible for a landlord to go after the tenant’s assets in unpaid rent.

Consult a Licensed Professional for Assistance

To succeed in the future of retail real estate, you need to invest in growth, build out a team, and continually negotiate terms with tenants. Without the right guidance, managing a successful retail real estate establishment can be an uphill task.

Contact Laverty Chacón Commercial Real Estate (LCCRE) for professional assistance. Our team will help you move into retail, make your first retail acquisition, and prepare for the future of retail real estate.

Posted In:

« Previous Next »