CREJ - Retail Properties Quarterly - August 2016
We all have a favorite convenient local retail center near our home or our office that offers the things we need on a daily basis. These favorite centers typically include stores that fill our basic needs, like groceries and services, wine and spirits, cell phones, dry cleaners and salons. We recently began seeing more quick-serve food and coffee in this mix as well. But what happens to these centers when time begins to render them obsolete? Retail space, like the products sold, has a shelf life that can become stale over time. The challenge when redeveloping these centers is enhancing the value of the asset while maintaining the bones that define and, sometimes, constrict the project. The owners’ dilemma is that many of their leases were written years ago under different economic conditions and renewals haven’t kept up with current trends in retailing or encouraged a return on their investment. Existing centers were configured in times when long-dark boxes were fine because merchants pretty much sold what everybody else did without much specialization. Designs reflected the attitudes of “Give me front door glass and a back wall for my merchandise, and I’m fine.” However, those dark boxes don’t command premium rents in current interactive retail environments today. Today’s retailers – and their customers – demand more personal interaction, more amenities, more natural light and ventilation, and a more inviting experience. We see demand for food, connectivity and entertainment, including smaller stores, personal service and higher quality merchandise. These trends lead to demand for a more intimate pedestrian environment, including outdoor seating for al fresco dining and places to gather and interact. Access and visibility from the street is critical to the success of the project, so creative placement of improvements is key to the success of redeveloping a center. When considering design options in response to these trends, it becomes apparent that quality tenants will pay more for better quality space. Frequently this drives redesign concepts to the point of removal of underperforming, enclosed square footage, which is replaced with amenities as well as outdoor and pedestrian spaces to drive a net increase in revenues. The resulting spaces allow owners to sign flagship tenants and first-to-market concepts that add value to their assets and improve their marketing and tenant renewals. Many owners with centers that have not aged gracefully during their life cycle are realizing that the tenant competition for stable assets in mature neighborhoods is fierce. They must invest in their properties to keep up with the market. Fulfilling the strategy of enhancing the value of aging shopping centers by implementing high-quality enhancements while maintaining the bones of the asset is successful to the health of most redevelopment deals.