Retail Renaissance: Fact or Fiction?

Posted by Kris Lindahl on Thursday, July 4th, 2019 at 1:52pm.

is-there-a-retail-rebirth-in-commercial-real-estateIs it simply wishful thinking, or as some business leaders contend, are we seeing a rebirth of innovation in retail and commercial development in Itasca County? There is no doubt, according to experts, that there are still some store closings and retail chain reorganizations ahead, but the impact may simply be "more of the same" rather than a pronounced downturn, as many had feared.

Based on prevailing opinion from leaders at the International Council of Shopping Centers convention in Las Vegas, there is still ample opportunity for retailers to grow and prosper. Low unemployment rates hinder growth because entry-level retail jobs are sometimes difficult to fill. There may still be store closings, according to most experts, but they are likely to be based more on individual store performance rather than chain-wide bankruptcies.

Speakers at a local half-day summit sponsored in June 2019 by MN Real Estate Journal, echoed those same views while presenting an overview of the future for all segments of commercial real estate.

Twin Cities Projections

Those big box bankruptcies had a measurable effect in 2018 in Minneapolis and St. Paul, but prime location, Class A retail space is filling. Available Class B space is also recovering, although time on market tends to be longer than previously experiences, rental rates are flat or declining somewhat, and competition for tenants remains strong.

Interaction between owners and tenants is deemed vital, and creativity in terms of leasing options and tenant relations is deemed essential. The consensus, however, is that 2019 will bring no dramatic changes to this area. More of the same is forecast. And that sameness, while not record-setting, is positive for all segments of the market, including owners and investors, real estate professionals and tenants at all levels of the retail mix.

Satisfying the Need for Space

Previously-identified needs continue to plague the retail market, both locally and nationwide. With the continuing growth of internet marketing and online sales, trends point to a declining need to serve traditional shoppers in brick and mortar stores. However, there has been a resurgence of consumer interest in store pickup locations.

The convenience of ordering online with a local pickup option cannot be denied. Even smaller grocery chains, dine-in restaurants, book stores and boutiques have bought in to the trend, providing parking spaces, separate counters, drive-through lanes and to-the-car-delivery for such customers.

Major retailers, Amazon included, have begun to rethink previous assumptions about the future. The need for additional warehouse space will grow, but future options will undoubtedly include more fulfillment centers and small-scale, mixed-use retail centers. The character of retail may change, but continued growth seems a given.

Construction and Technology

The expectation for continued construction and building finish-outs is high, even though major developments, like the Dayton's renovation, have been slower than projections. The local development boom will likely return to more sustainable levels of growth, according to most analysts. The cities and their suburbs, however, benefit from the availability of both skilled and entry-level construction workers, a fluid financial and investment climate, and forward-thinking, growth-oriented governments.

Demand for new and remodeled space across all sectors of commercial development remains strong, with 35 straight quarters of positive absorption recorded. Not limited to the major cities, the 2019 construction forecast for the entire region is one of increasing opportunity. An influx of out-of-state investment is not only interesting, but welcome.

Technology, too, continues to impact the future, not only for forecasting trends, but also in terms of responding to needs. While the future of e-commerce is still an open book, better tracking of consumer habits and the use of artificial intelligence as a predictive tool will perhaps offer new insights and guidance. Technology and automation are sure to become increasingly important as a way to cushion the impact of the tight labor market in the retail sector.

An Overview of Opinions

So, despite some mixed opinions, local commenters feel good about the future. But there are some cautionary views:

  • Demand for single use retail may be waning;
  • Find the right lender or financial partner has become more difficult;
  • The disparity between buyers and sellers may be widening;
  • Costs are higher, across the board, both for retail development and retail operations.

Operators of local shopping centers and smaller malls would be wise to concentrate on the creation of unique experiences, according to the analysts, focusing more on shopper needs than physical space. Amenities may be the way to boost the numbers for all concerned.

But, however one views the needs and challenges, there is promise ahead, according to the speakers.

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