Retail Continues to Find Creative Opportunities to Make a Return

The pandemic may have provided a much-needed boost to retail development, which appears to have adapted to the changing needs of consumers. Rhonda Diaz, executive vice president at JLL, and Brian Michel, a partner in the Century City office of Allen Matkins, discuss in response to the Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey about what’s happening in California’s retail development and the trends they’ve noticed in the space.

Don’t Count Retail Out

Retail has been on the decline since construction peaked in 2018. Yet, compared to the rest of the world, the United States has nearly double the amount of retail space. For years, the ratio was 23 square feet per capita. Even after the pandemic cutbacks in retail construction, and record store closures, the U.S. still has 22.8 square feet of retail space per capita. That’s an insignificant drop that doesn’t align with the public’s perception of the market.

Michel pointed out that the retail sector has already navigated the shock of e-commerce and home shopping opportunities, which gives it an advantage. Unlike the office sector, people actually want to visit stores and retail centers. Developers are already seeing renewed interest in retail. It looks different than it did ten years ago with a different tenant mix that includes a combination of grocery and medical combined with retail.

Retail Is Evolving to Meet Current Demand

One explanation for the growth is how retail evolved to meet current demand. Developers are beginning to understand that people don’t just want to shop. They also want an experience. It’s not the clothes and shoes drawing them to the shopping center. They show up for the art, the contributions to the community, and the events they can participate in and watch.

A similar evolution is taking place in the hospitality industry. Chef Todd English plans to open an 80,000-square-foot restaurant in Connecticut that’s a part food hall, museum, science lab, and education facility. People want to be part of life that doesn’t take place behind a computer screen.

People Want a Sense of Community, and Retail Can Fill That Need

After spending time isolated at home and connecting over video calls, people want to feel like they’re a part of something. The pandemic taught the world the value of human connection. Shopping centers naturally bring people together. They give them a place to congregate with their family, friends, and pets.

Developers are spending more time considering the purposes of their spaces and the value they add to the community. Consumers still want convenience, but they also value sustainability and want to spend their time and money where they feel it does the most good. They’re looking for like-minded organizations and companies.

There Are Still Growth Opportunities for Retail in the Suburbs and Multi-family

Diaz and Michel agree that development in the suburbs has created some interesting opportunities for retail. Remote work allowed workers to flock to the suburbs, and some of them plan to work from home permanently. Demand for retail increases when people move to a new area, and these new residents are raising demand even more. They still take breaks during the day, but instead of wandering around a downtown area, they want to take those breaks closer to home.

Some of the trends popular in multi-family also appear to be making their way into the retail space as developers are following multi-family into the suburbs. According to Diaz, one such trend is the growth of micro cities that blend retail, leisure, and entertainment with residential. These developments add value to communities by giving residents convenience and experiences.

Industrial and Warehouse Will Not Take Over Retail Space

Demand for last mile distribution remains higher than supply, but that doesn’t mean developers can convert unused retail space to meet demand. The fundamental rule that land should be used for its highest and best use has not changed. Retail space tends to be well located near highways that allow for easy distribution, but the existing buildings don’t necessarily meet the needs of the industrial and warehouse space. They may lack logistics like ceiling height, and the neighboring communities may object to seeing a warehouse take over a former mall or big box store.

According to Michel, the most successful retail developments over the next few years will be the ones that attract consumers, and those consumers want experiences. Diaz concurs, pointing to the success of retail centers that incorporate outdoor elements like green spaces and water into those experiences.