The International Council of Shopping Centers (ICSC) held its annual regional conference in Philadelphia last week. Attendance was down, but there were deals being done and new contacts made.
The conference included:
- A tour of developments in the Convention Center area, such as PREIT’s redevelopment of the Gallery, rebranded as The Fashion District, and National Realty and Development’s East Market mixed use development,
- Workshops on topics such as where operations and maintenance planning fits into development, women in commercial real estate, and leasing to the cannabis industry.
- Round tables on redevelopment, adaptation of prototypes and updates on opportunity zones.
Some of my take-aways include:
- At every turn, it seemed there was a New York developer looking to get into the Philadelphia market. While the value of real estate in Philadelphia has risen, it still lags the markets to the south (Washington DC) and north (New York). According to Real Capital Analytics, commercial prices in non-metro areas rose at a faster pace in 2019 Q1 than prices in the six major metro areas of New York, Boston, Washington DC, Chicago, Los Angeles, and San Francisco. In March 2019, commercial prices were broadly up by six percent in non-major markets compared to 4.5 percent in the six major metro areas. None-the-less, the non-major markets have lagged over the longer term and present a value while they catch up.
- The death of retail continues to be exaggerated, but you must read past the headlines to understand it. Globest.com reported that the retail apocalypse is driven significantly by a changing business model and investors trying to play the new game by old rules. Since 2010 nearly 60% of major US retail bankruptcies have been driven by overwhelming leveraged buyout debt. Better news is found in the report by research and advisory firm IHL Group. It found that more chains are opening new locations than closing locations. Retail is not dead, but it is different. In the past, the leasing team would call their top 10 contacts, and lease to 8 of them in each center. Now, those retailers are not opening as many and shoppers want more diversity and “shopertainment”. Chris Harden of Cushman & Wakefield points out that retail is evolving. It is not competing with e-tail, rather complimenting it. Otherwise, why would e-tailers such as Warby Parker, Bonobos and Untuckit open physical stores and why would there be B8ta?
- No one wants a 225-foot-deep store and a lot of centers have those big boxes sitting empty. The popular alternative for the closed Kmarts, Sears and Toys R Us stores is self-storage. There are hurdles to overcome such as lease restrictions and zoning issues. At JL Architects, we are working in repositioning a shopping center for National Realty and Regional Construction. It includes a closed ACME grocery store and Toys R Us. The client opted to reduce the size of the building to fit their tenants’ needs. In addition, the “unused” GLA (gross lease area) allows them to develop new pad sites or expand other users in the center.
- Experiential retail (“shopertainment”) has been the leading antidote for many years. The popular notion is to include fitness, arcades, and theaters. Those are easy to pencil because the cost and revenue can be tracked like the good-old-days. Things are changing. There was a movement towards “life style centers” years ago and, like everything else, it is maturing. The next generation of retail is for the destination to include retail and entertainment, but not be exclusively taking place in the leased areas. The ability to track shoppers as they drive by, come to shop, and hang out at the center has shown that in some of the most successful renovations and repositioned properties, not everyone who visits comes to shop or eat. However, the property is still a destination and they come to experience the place. The next generation of life style includes much more than a wide sidewalk, planters, a plaza and benches. It a place to visit, be in and experience. Those visitors create activity. They may or may not shop, but by being in the space, they create interest and attract other visitors who eat, drink and shop.
The greatest successes come from the greatest challenges. There are many opportunities in the market, and this is an exciting time to be in it. The need for creativity has never been greater. Let JLA brings our balance of design creativity and business understanding to your next project.
John Lister, AIA, GGP