There’s is about one billion square feet of space that needs to disappear in order for the retail market to get its groove back. “When a J.C. Penney’s or Macy’s store closes, often the locations aren’t very strong anymore. Headlines that are battering the retail sector are not indicative of all retail – the need for new construction in best locations will continue,” according to Suzanne Mulvee, director of research and real estate strategist at CoStar.
Mulvee, who was speaking at a retail conference hosted by BisNow at a raw office space inside 1251 Avenue of the Americas in New York, saw her sentiment echoed and expanded on by other panelists. “[The retail sector] has too much square footage,” said Jeffrey Bayer, ceo of Bayer Properties. “Location, location, location still rules the day – as e-commerce becomes bricks and mortar, venues become extensions of the brand.”
The best locations, however, aren’t necessarily inside of a CBD. “We think smaller markets with open-air properties are better,” said Brad Hutensky, principal and president of Hutensky Capital Partners. “Mixed-use projects will potentially be better than a traditional mall, depending on if public transit is in the immediate vicinity,” added Joel Sklar, president and principal at Samuels & Associates in Boston. “There are a lot of opportunities for expansion in existing properties.”
About 100 million square feet of retail was being built annually nationwide before the recession. “This number has clawed itself back to 50m square feet [being built per year in the U.S.],” Mulvee said. In addition to the problem of too much retail, bricks and mortar retailers often aren’t selling products that many consumers want, Hutensky said. “Faced with this new environment, multichannel retailers need renewed focus on bricks and mortar,” said Andrea Olshan, ceo of Olshan Properties. “There is great opportunity to profit by offering compelling in-store experiential elements to stimulate sales. Those retailers who are doing this are winning.”
No matter what the location, retailers that offer a compelling online experience and experiential brick and mortar stores will be the winners, according to Ben Conwell, senior director at Cushman & Wakefield’s Seattle office. “Online retail today accounts for $400bn, and is growing at about 15% per year,” he said. “We are in the infancy stage of grocery delivery, which makes up less than 5% of online purchases.”