National retailers have been hurt by online sales but the largest shopping-mall companies are still doing well.
This was the message delivered in late September at the International Strategy & Investment’s (ISI) real estate conference. ISI is an investment research firm and the CEOs at their conference said that individual retailers are being challenged by online sales but that many real estate investment trusts who own retail property are showing occupancy of 90% or more and annual gains in lease rates.
3 Reasons Real Estate Investment Trusts Are Showing 90% Occupancy and Lease Rate Gains…
- Big box retalers like Best Buy and Staples have been closing stores but chain stories that are more likely to be in a mall setting such as Forever 21, TJ Maxx, and Nordstrom Rack have been expanding
- Many retail landlords are bringing more and more tenants in who are offering services such as restaurants, nail salons and gyms whose services can’t be purchased online.
- Since construction of new retail space has been limited with the recession, retail landlords are benefiting from less competition. Developers are expected to complete construction of 19 million square feet of retail property in the top 54 U.S. markets this year in comparison to 159.4 million square feet at the height of the boom in 2007.
The Good and Bad for Retail Real Estate
Online sales have been one of the most serious threats that shopping centers have ever had to face. Online sales of certain types of goods such as electronics, books and office supplies have been hit severely and online sales in all categories are growing. The National Retail Federation (NRF) predicted recently that holiday sales–both online and brick-and-mortar–in the United States this November and December will increase by 4.1% this year to $586.1 billion. Online sales are projected by the NRF to grow 12% to $96 billion this November and December.
How to Adapt?
Retail landlords are recruiting omni-channel retailers who sell well both online and in their stores. Stores like Apple, Wal-Mart, Bed Bath & Beyond, and Saks. Retailers should also look to diversify their space to hold more tenants with less space than the other way around.
Future Challenges
Online sales aren’t as profitable to companies as brick and mortar sales. Tenants pay their rent with profits, so stores need to find a way to make online sales more profitable to insure the health of retail landlords. Retail landlords need to eventually figure out how to stop show-rooming where customers get educated at the store and interact with products but ultimately buy those products online.
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