From pandemic phases and hybrid work models to rising inflation and the return of tourists, the retail sector is still grappling with a lot of changes.

The streets of major urban areas are starting to experience a heavier volume of office workers and tourists, a trend that is vital to the continued recovery of the retail sector in downtown submarkets. The work-from-home model changed everything for retailers, according to experts participating in a recent webinar sponsored by Placer.ai. However, restaurants and stores located in the suburbs have adapted quicker and fared better. Rising gas prices and inflation represent new dangers looming on the horizon. The session was moderated by Ethan Chernofsky, Vice President, Marketing for Placer.ai.

“There was already an incredible amount of retail disruption heading into COVID-19 and, two years later, we are starting to see a recovery in high-density urban areas, including New York City,” explained Whitney Arcaro, Executive Vice President, Head of Marketing & Retail at RXR Realty. “Contributing to the comeback of late has been the return of tourism, particularly among international travelers. Evergreen properties, which combine high-density commercial and residential uses, have particularly fared well.”

“Everyone is keeping a watchful eye on gas prices and the accompanying inflation because that scenario is just bad for all retail, but particularly hard on families operating on a weekly budget,” said James Cook, Americas Director of Research at JLL. “Now, when consumers fill up their car with gas, they have $30 less to spend on everything. This translates to families eating out less and purchasing less discretionary items.”

Work-from-home kept consumers off the streets

Cook noted that the retail sector experienced “a new dawn…when the people started working from their homes because this basically removed people from the downtown areas. Retail sales in the central business district plummeted but we are seeing strong signs of a comeback.”

According to a retail report issued by JLL earlier this year, “Office workers aren’t back at pre-pandemic rates, but every month welcomes more and more people back, supporting retail that relies on a robust daytime population. People are traveling again and, with international restrictions ending, popular urban tourist destinations are poised to see more visitors.”

“When companies decide on work from home policies, they are studying occupancy costs versus revenue and, in most cases, not mandating a return to work,” added Arcaro. “This typically entails more flexibility for the sales force and less for those in the creative fields that thrive on brainstorming and tackling issues as a team. Or, they may require employees to work from the office two or three days per week. For industries – such as law, architecture, real estate and investment banking – tutelage and mentorship are absolutely essential but these decisions vary industry by industry and company by company. Everyone is still trying to figure it out.”

Restaurants add drive-throughs to boost sales

Shifting behaviors among workers, consumers and tourists have created ongoing challenges for restaurants.

“National restaurant chains adapted quicker and are better positioned for the future because more consumers are eating out in the suburbs,” Cook added. “This is not so much the case in cities. Restaurants quickly pivoted to curbside delivery and pick-up models, and new formats are including one, two and even three drive-through lanes. They are trying to serve a high volume of consumers with less people. One positive aspect of the pandemic was the return of outside dining in urban locations. No one wants that to go away.”

“Medical uses are emerging as the new ‘banks’ for retail centers and developers, in particular, love the stability of the sector,” Arcaro said. “This includes Botox providers and cosmetic dentistry. Digitally native brands are also increasingly choosing brick and mortar locations to increase their brand. The quick-service restaurant category is not perceived as fast food anymore and there seems to be a new kid in town every two years or so.”