- May 10, 2018
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Whether you are an investor or a tenant looking to lease retail real estate, it’s valuable to understand the shifting dynamics within this sector. The forecast for retail real estate hasn’t been great, with store closings on the rise and a noticeable increase in the presence of online retail. There is not, however, any need to panic just yet. Understanding the truth about what is changing is likely enough to maintain stability in the current market and prepare you for any future shifts
Know the Facts
While the future of retail real estate has recently been clouded in uncertainty, the facts and figures don’t lie. The truth is that the top retail real estate owners in the United States are currently maintaining occupancy rates of upwards of 95%. In other words, just because some of the heavy hitters in retail have opted to close their doors, it doesn’t mean that the entire market is headed for disaster. As of now, approximately only 9% of retail sales are being conducted online, which is about the same percentage of sales that catalogues used to account for back when they were in their prime. This number is definitely expected to rise over the course of the next few years, probably to somewhere in the 20-25% range.Even that fact, however, doesn’t predict a mortal blow for the retail real estate market, so, what should you prepare for to stay in the game?
As online shopping becomes more and more convenient, consumers are demanding good reasons to be drawn out of the comfort of their own homes. For that reason, the retail real estate model has had to change in an effort to accommodate these needs. Rather than the traditional retail mall experience of the past, new retail malls are working to include a broader variety of businesses that can offer consumers a shopping “experience” that they can’t get online. This new, non-traditional model is interspersing places like upscale movie theaters, unique restaurants, bowling alleys, gyms, and other experiential businesses that have, up until now, been rare to find in a more common shopping center. These businesses are proving their worth, as they draw in a consistent consumer base which the more traditional retail stores are benefitting from. To stay alive and thriving in the market as it now stands, retail businesses are being invited to get creative and offer consumers something they can’t get anywhere else.
In addition to offering a unique experience to consumers, the location of retail real estate has also become increasingly important. Again, with products essentially at their fingertips, people are becoming more and more hard-pressed to leave their comfort zones, which means that you’d better be within the parameters of them. Location has always been important, but now, more than ever. Finding property that is visible, easily accessible, and located within close proximity to neighborhoods, grocery stores, and schools is imperative if you want to continue to actively engage your market.
Finding a Lender
All of the changes within the retail real estate market have left a lot of lenders worrying about the future of this sector. Obviously, this means that they may be more hesitant to dole out the money to help you secure your space. Knowing this ahead of time is important so that you can find some alternate possibilities to help fund your investment. More and more investors are seeking out private lenders here, as the larger banks and institutions shift their focus towards seemingly more secure markets.
With the changes in the retail real estate sector, many tenants are looking to alter the traditional lease structure. To avoid becoming locked into leases where rent increases are surpassing the ability for sales growth, retail tenants are looking for shorter leases or more incentive to sign on for longer periods. Many landlords are choosing to offer discounts for longer leases, or are including lease stipulations outlining that a tenant may break the lease without penalty if they are unable to meet their profit margin within an allotted amount of time. It may seem counter intuitive at first, but getting the right tenant in your space will ensure that your investment is paid for, even if it takes a tenant or two to get it right. In short, everybody wins.
Looking for Retail Real Estate in the Baton Rouge Area?
With a better understanding of the retail real estate market, it’s easy to see that it’s not a sector that is dying off anytime soon. In fact, it might be exactly the right time to invest in your retail property, so why not get your search started?Working with the pros at SVN | Graham, Langlois, & Legendre is a perfect place to begin! Take a look through our database of available properties and contact a member of our team today so that we can get started working for you!