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— Retail Properties Quarterly — November 2015
R
etail is changing. Pricing,
sex and uniqueness were
historically sold via the
Internet, but now are slowly
changing our local retail.
This is especially true with regard
to the uniqueness portion of the
trio. Technology and the Internet
make it convenient to shop from
your home, work or a mobile app.
However, the pocket neighborhood
stores and strip centers are becom-
ing their own unique identifiers.
Yesterday’s trends are adapt-
ing and recently gave birth to the
concept of the “third home,” or the
more common term of the new “18-
hour center.”
Today’s younger generation con-
tinues to define itself socially, not
only as who they are or where they
work, but also where they live. The
concept of working in teams from
our education system is drifting
into the retail system and changing
how consumers define themselves.
To identify as a part of a unique
neighborhood is not only surviving,
but also excelling in our communi-
ties. This is the largest contributing
factor to the rebirth of the commu-
nity strip center and small-pocket
neighborhoods.
Retail hubs are transforming.
Owners are realizing that they can
no longer fail to reinvest. Social
consciences are becoming more
powerful. Owners are asked to
upgrade facilities, remove graffiti
and recapture the past or dwindle
in profits as cus-
tomers seek out
the nostalgic retail
in adjacent com-
munities.
Investors on the
sidelines are tak-
ing notice as well.
The latest invest-
ment strategy is
the time-tested,
value-add play
that encourages
investors to buy an
older center that
needs some TLC
and reposition it
into an 18-hour center.
This 18-hour center becomes
polished, but retains the neighbor-
hood feel. It opens itself up to the
surrounding community, often tak-
ing on the values and expressions
of the neighborhood. Tenant mixes
tend to accommodate the local flair.
The center takes on the personality
via its tenant mix. Often a creative
neighbor leads this by launching a
new business concept. America is
slowly recovering by making retail
more personal and tailor-made to
the residents who surround it.
In family-orientated communi-
ties, there emerges a child-friendly
place, two or three restaurants, a
dry cleaner, a coffee shop and some
supporting neighborhood services
such as a day care or the local real
estate broker, insurance agent or
chiropractor. In the younger, more
affluent infill areas, a brewery and
local pub replace the family-orient-
ed retailers.
Nowadays local ice cream or cof-
fee stores are anchors in retail cen-
ters because they offer an appeal to
a variety of consumers – from the
traditional summer opener to the
late-night date location. People are
trending back to the basics of child-
hood with these classic retailer/res-
taurant concepts.
The economics of this trend only
further validate the new 18-hour
center. Having strong, local support
for retail hubs that are walkable or
a short bike ride away that offer
coffee at 6 a.m. and a late snack
or nightcap at 12 a.m. is appeal-
ing to many. Fiscal modeling often
predicts a three- to five-year hold,
which can result in an increase in
annual returns over traditional buy-
and-hold strategies. The stronger
local-orientated tenant mix tailored
to the community often supports
and commands these increased
yields.
Investors are taking well-located
retail properties from a traditional C
class to a B or A class, making new
and future owners take notice. This
concept is successful because it
gives people what they want, which
is the option to stay and purchase
locally. This concept produces sta-
bility for future owners after the
value add is completed and stabi-
lized.
Of course, there is risk. The larg-
est risk is the building themselves,
which need to be validated to avoid
getting stuck with a structure that
was unmaintained for too long and
may be too costly to renovate. Hav-
ing a local property management
company help assess those values
is key to a successful conversion.
There is a new popularity to be a
local-vorian – someone who takes
resounding pride in staying local,
aiding a neighbor and supporting
what he believes is unique to him-
self and to the community.
Local breweries are leading the
charge in this area, but smaller
commercial entrepreneurs are
catching up. Investors are position-
ing themselves to morph from the
fix and flip of homes to smaller
retail hubs and centers. The upside
of having tenants who stay a bit
longer than an average residential
renter makes the concept appealing
for long-term owners who are now
getting market rates for their long-
held community hubs and strip
centers.
Currently there is a small pre-
mium paid by investors who want
to take advantage of this emerging
trend in well-known areas. Ameri-
can cities are being reborn from
the inside out. You only have to ask
your local neighborhood barista, dry
cleaner or bartender. We are rede-
fining ourselves by who we are and
where we live – as America takes
back pride in our communities.
s
Tom “TJ”
Kaufman, MBA
Managing
broker, Dunton
Commercial,
Denver
Retail Trends
