It’s easy to write-off the future of retail properties based on a few headlines spelling out the demise of some major U.S. retailers. The closing of big-box stores such as Sears or the bankruptcies of major brands such as Radio Shack get plenty of attention.
The truth, however, shows bricks-and-mortar retail shopping centers, mixed-use developments and stand-alone out parcels in many cases to be in fine condition. Lenders and investors are eager to finance and own these properties as consumers return to shopping, fueled by job and wage growth.
As part of our Defease with Ease® “Peering Over the Wall of Maturities” series, last week we looked at the growing number of retail properties involved in a commercial defeasance so far this year. It’s motivated by 2005 to 2007 vintage, 10-year CMBS borrowers finding this to be a good time to defease and take advantage of interest rates while they’re low.
As the shopping world gathers this week at the International Council of Shopping Centers big convention in Las Vegas, we’re taking a look at four reasons why retail property owners can feel good about the future of their asset, too.
1. Clicks are merging with bricks. A recent survey conducted by eBay revealed a growing number of online retailers see bricks-and-mortar stores as a growing part of their strategy. The survey results show 14 percent of respondents planned to make their first investment in a physical store in 2015, 12 percent indicated plans for a bricks-and-mortar expansion and 11 percent said they intended to try pop-up shops to drive new sales.
2. Click then collect. Another promising trend has been shoppers making purchases online but choosing to pickup the merchandise at a nearby retail location instead of waiting on shipping to their front door. It’s a major growth opportunity in the U.S., says professor Scott Galloway at New York University. At a recent ICSC conference in London, Galloway told attendees about 57 percent of shoppers in the UK have used click-and-collect. In the U.S., only 19 percent have tried the service. It creates a major opportunity for existing physical retailers to tap as they look for ways to make their omnichannel shopping experience more attractive than their online-only competition.
3. Occupancy has improved. It took awhile post-recession, but occupancy rates for retail properties have returned to pre-crisis highs, according to a Nomura Securities analysts report. The improvement has been driven by weak demand for new retail developments, pushing retailer in growth and expansion mode into existing properties.
4. Urban lifestyle centers offer opportunity. As millennials and empty-nesters move into urban areas, retailers have flocked to lifestyle centers where shopping, dining, workplaces and personal wellness blends together. These walkable, dense developments will continue to be in high-demand as migration trends show no signs of slowing down. It’s a trend that has created opportunity for forward-thinking ownership groups willing to transition from big-box retailers with large parking lots to boutique environments that offers a better experience. “Today’s customer is looking for an experience that feels more real and fun, with more variety,” say researchers in a recent report from Buxton & Co. “By adding restaurants, services, and experiences that cannot be mimicked online, malls will ultimately be turned into places where people go to shop, eat and be entertained.”
Our team of Defease with Ease® experts has been on-site at the ICSC event this week, talking to owners and investors about the long-term opportunity for repositioning retail properties and how a defeasance now may be better for their long-term bottom line than waiting to full-term on their current loan. To learn more about how defeasance or prepayment might work for your property try our free calculator at www.DefeasewithEase.com.