One of the most important things to consider for those looking to make value-add real estate investments in old malls or mixed-use developments is how the change in what consumers want and expect is going to lead to the increased rise of experiential retail.
For those not familiar, experiential retail, is the term given to the new blend of experiences into traditional retail. It’s what you see working at the high-end malls and town centers. It’s perhaps, one of the things most smaller retail areas are missing.
If you’re looking for a more in-depth look at experiential retail the NAIOP – Commercial Real Estate Development Association, formerly National Association for Industrial and Office Parks, has an excellent look in their article The Rise of Experiential Retail. As it is really all about the person going there’s experience.
The bottom line seems to be that while most “stuff” can be bought online, people will still go to brick-and-mortar locations to have “experiences.”
These experiences can be wide-ranging, and include the following:
- Personal services such as nail and beauty salons.
- Health and fitness facilities such as yoga, massage and meditation studios, as well as traditional gyms.
- Cinemas and theaters that present plays, concerts, comedy shows, lectures and more.
- Art galleries and stores.
Storefront Magazine has an excellent read on experiential retail and how it is going to shape the future of shopping, 7 Case Studies That Prove Experiential Retail Is The Future.
Customers don’t want to just walk into your shop, buy your product and leave because they could do this in the comfort of their own home. But by creating a more immersive retail experience, retailers can drive people towards their stores and ensure they leave not just with your products but also memories.
Retailtainment is predicted to dominate the industry, the fusion of retail and entertainment, an effort on the part of retailers to provide customers with fun, unique experiences that elevate shopping above anything it’s previously been.
Though in most cases experiential retail is considered as being within a store or property as a mall, an interesting real estate investment strategy, for anyone not looking to invest commercially would be to look at towns that are adopting events that blend into the experiential retail experience. A great example would be the Town of Media.
If you’ve ever been to Dining Under the Stars or any of the other times they close the street and open it up to foot traffic, you see the transformative power of creating an inviting experience.
Recently, a very astute real estate investor, who’s been successful in Fishtown and Brewerytown, told me he considers Media an excellent place for residential real estate investment. He cited the commitment of the town to driving people to the stores and restaurants downtown (Basically…experiential retail), good schools, access to good public transportation (regional rail and trolley), and his belief we’ll see a migration of millennials into places like Media as their demographic ages.
For those looking to find the next best real estate investment, this recent article from BisNow, As Retailers Go Dark, Mall Vacancies Reach Highest Level In 7 Years, shows older malls, especially in the suburbs and rural areas, could benefit from looking at incorporating experiential retail into how they view their property.
The article mentions some data from REIS.
Nationwide, mall vacancy rates rose to 9.1% in the third quarter, their highest level in seven years, according to Reis data, up from 8.6% in Q2 2018 and 8.3% in Q2 2017. Rents are down as well by 0.3% during the third quarter to $43.25/SF.
Many lower-end malls aren’t benefiting from the economic revival, especially in economically depressed areas, such as parts of Pennsylvania, Ohio or Michigan.
Those areas have too many shopping centers but not enough consumers, the Wall Street Journal reports. Lost anchors in lower-end malls are more of a symptom of a problem than a problem itself for many properties.
“Any mall that is worried about a Sears or Macy’s closing has bigger issues,” Sandler O’Neill + Partners Senior Analyst Alexander Goldfarb tells the WSJ.
Retail is going to continue to change. Property owners who adapt best are going to find the greatest success. In many cases this is going to mean re-thinking the tenant mix or even starting to look outside the box and consider co-working spaces or other ways to create unique experiences within the property.