The retail sector is facing another wave of changes, including shifting consumer patterns among Millennials and the emergence of the medtail submarket.
Panelists participating in a recent webinar sponsored by Placer.ai debated the current and long-term prognosis of bricks and mortar retail. Given the pent-up demand exhibited by consumers nationally, the group suggested there might exist “an inflated sense of recovery at the present time” and the looming holiday shopping period will provide a more accurate barometer on the state of the industry.
The speakers largely agreed on several points:
- Top tier malls across the board are performing exceptionally well,
- The upcoming winter is expected to be “bumpy” for retailers,
- Retail projects in suburban areas will continue to steal market share from those in the inner cities, and
- Medtail (defined as medical uses in retail centers) is emerging as the next trend to fill vacancies, particularly replacing apparel stores.
Local area real estate developers and brokerage professionals agree with those findings.
Quality retail endures
“It is difficult to make a blanket analysis and generalize for the entire country because each geographic area is different but retail is back and has been for quite some time,” explained Alanna Loeffler, Managing Director, Business Strategy, Americas Retail Services for Cushman & Wakefield. “Retail sales jumped 11% in one month recently and store closures have reverted to levels we last saw in 2018. Top tier malls, by and large, have not missed a beat and remain strong. More stores are opening than closing in the current environment.”
“Quality retail will always be here because they have a major role in serving the community and if anything, there was a shake-out among the weaker retailers and the better ones are staying on,” stated David Spawn, Vice President of Research for Brixmor Property Group. “In fact, the stronger retailers uncovered ways to serve its customers even better during the pandemic.”
Winter chills retail sales
“Many are predicting a bumpy winter for retail, especially after the euphoria of the holiday season subsides,” said Spawn. “Restaurants found a survival path last year and they will be challenged to repeat that effort once again.”
“I agree that the holidays will be major indicator about the direction of retail in 2022,” added Loeffler. “In anticipation of continued fallout, developers are making changes to existing retail and office buildings to reflect potential new uses.”
Millennials drive shift to suburbs
A growing trend among Millennials is impacting sales for certain types and locations of retailers.
“Millennials are driving the most significant migration to the suburbs, as they are looking to leave the city to raise families,” said Loeffler. “The largest segment of homebuyers reside in this age group and home prices have spiked 20% this year alone. The home and décor categories have mirrored this growth with a 25% surge and urban-located chains are following this shift to the suburbs. B and C class malls are being repurposed to provide the community the retail services it really needs. All is not lost for urban retailers as they are change agents and major suburban chains such as IKEA and Target now have smaller formats that fit into smaller spaces downtown.”
“Urban flight has been occurring for some time and this is not a news flash,” countered Spawn. “Families moving to the suburbs is a given and my take is that people are actually remaining in cities longer because of the lack of housing stock. Basically, they have no place to go. The growing trend in my view is the tremendous growth occurring in the Sun Belt cities.”
“Greenleigh, our mixed-use community in Baltimore County has been the beneficiary of this urban flight for many years and we have detected a significantly higher pace of single-family and townhome sales over the past 18 months,” explained Bill Holzman, Vice President, Retail Leasing for St. John Properties. “Young professionals, in particular, are moving here to access an urban environment in a suburban setting and to take advantage of the connectivity between office, retail and residential product.”
The grocery store sector continues to grow, Spawn said. “Even if dining comes back to its previous levels, and most agree it will, there still remains a large segment of consumers who have now learned how to cook and actually enjoy it. The popularity of home-delivered food kits will slice a piece out of grocery store share.”
“Fast-casual and quick-service restaurant concepts remain the strongest and most active categories throughout our retail portfolio, including with Greenleigh,” Holzman said. “The pandemic gave rise to mobile ordering and curbside pick-up. Restaurants which previously relied on walk-in traffic are now highly interested in drive-thru options. There just aren’t enough drive-thru build-outs to satisfy the demand. After a slow climb back, large restaurant dine-in formats are now seeking opportunities to expand, with many recognizing availability in spaces previously occupied by operators who did not survive the pandemic.”
Medtail grows as clothing stores dwindle
The newly-coined “medtail” category is making an impact on neighborhood shopping centers as the healthcare industry rapidly expands. Fueled in part by the pandemic, the category is also driven by the need among major urban-based hospitals to offer urgent-care and other services in locations where their patients are moving – the suburbs. Landlords are constantly searching for new categories to replace shrinking ones, such as the apparel sector.
Neighborhood shopping centers offer every critical element that the medical sector craves, namely: sites served by major highways, unparalleled roadside visibility, locations within close proximity to patients, free parking, ground-floor accessibility and private entrances.
“So many pundits are focused on the growth of online spending and its erosion of demand for bricks and mortar stores. Investors in enclosed malls should be studying this closely, but the majority of demand for retail strip centers – where we focus – comes from fitness operators, restaurants, entertainment uses, and medical users – to include dentists, chiropractors, physical therapists, urgent care clinics, multi-practice medical offices, and more,” explained David Donato, Chief Operating Officer for Continental Realty Corporation.
“Maybe Covid is accelerating the growth of leasing demand from non-retailers, but we have noted it for years. Just like traditional bricks and mortar retailers, medical users want surface parking, signage and branding opportunities, ease of access, and roadside visibility close to population centers,” he added.
“Malls and shopping centers continue to analyze its tenant mix and medical uses are rising rapidly on the target list,” explains Loeffler. “And uses are not reserved for the general practitioner as we are seeing leases with cosmetologists, veterinaries and other specialists. There is a lot of innovation taking place.”