By DJ Busch
Retail as we know it is going through a dramatic shift, and the negative narrative is loud as ever. Consumer behavior is changing, retailers are trying desperately to compete and owners of retail real estate are working to ensure their properties are positioned for the future. But not all the news is bad. Some landlords should be positioned not just to survive, but to do quite well.
In the public market, mall REITs have been trading at large discounts to the underlying value of their assets for quite some time. This investor skepticism has spilled over to open-air shopping centers (strip centers), which are now also trading at discounts. While mall REITs own 80 percent of mall value in the U.S., these signals from the public market can have important, and often overlooked, implications for private market players. It’s no secret that the U.S. is over-retailed, and we have a substantial amount more square feet per capita than any other country.
With e-commerce nipping at the heels of brick-and-mortar retail, Green Street sees the low-productivity malls and power centers/community centers at the greatest risk of attrition. These types of retail properties will have the hardest time remaining competitive. Retail centers can be better positioned to compete by incorporating defensive strategies, such as adding grocer or service tenants. E-commerce is a formidable competitor for almost every property type. Under specific assumptions, Green Street expects two-thirds of retail sales growth in the foreseeable future to come from growth in e-commerce.
DJ Busch is managing director of retail at Green Street Advisors, a global real estate research firm. He manages research for the firm’s shopping center and regional mall coverage and participated in the panel on e-commerce and retail at UCLA Anderson’s quarterly economic outlook conference in September 2017.
Continue reading about Green Street’s perspective on department store risk, retail fundamentals and more.
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