By Dennis Kaiser
Connect Retail West brought together more than 300 CRE leaders for an information-packed conference at L.A. Live’s Conga Room in Downtown Los Angeles. During five panel discussions, top experts shared insights about the future of retail. That included explaining how the sector is adjusting to continuous changes by adopting strategies that accommodate e-commerce, brick-and-mortar and omnichannel. Connect Media will be sharing more in-depth reports of each panel over the coming days, but here’s a few key takeaways that stand out from yesterday’s conversations:
24-Hour Cities: Transforming Neighborhoods & Changing Retail
Some of the biggest names in retail are keeping their doors open around the clock, providing the most innovative and convenient services. Panelists shared what major projects are springing to life, and how these 24-hour cities are evolving the West Coast retail space.
- Federal Realty’s Jeff Kreshek said, “For 24-hour cities to work, they must be compelling on every level.” That requires “building blocks” before an Apple store arrives. It is “hard to execute” in urban environments, though it is “most important to get the urban edge to look right.”
- Browman Development Co.’s Scott Bohrer said, “Flexibility is key. You need to be able to have options built into future development for non-traditional uses later.”
- SoulCycle’s Alan Cooke said the brand seeks sites where it can play a role in a neighborhood, “breaking out of a mold” with “inspirational new experiences.”
- Primestor’s Alan Araki said, “Part of the challenge is financing,” since “the income levels are not as high” in areas in which they are developing, “yet the cost is the same to build” projects.
Next Generation: The Future Leaders of Retail
The youngest decision-makers in retail are making a name for themselves. They shared current plans and future developments that are shaping this evolving sector.
- Reza Investment Group’s Cyrus Chini said, “Technology has helped the sales process of real estate with more transparency and easier decision making. It’s all about analytics.”
- Equinox’s Ashley Marlowe said, “It’s all about experience. Even at SoulCycle and Equinox, it’s more than just a class and sweating together. People seek community.”
- Runyon Group’s Joey Miller said he believes “purely transactional retailers will slowly go away.”
- Simon Property’s Matt Sebree said, “Online sales aren’t killing retail; even for better malls, they account for 10% or less of total sales. What matters most is time/convenience and experience, so we try to create ‘one-stop shops.’”
Opportunities in Net Lease: Capitalizing on Current Trends
Industry leaders examined the challenges facing the NNN sector, as well as the advantages it presents, as retailers seek to expand their portfolios. The deep-dive explored how changes in 1031 exchanges will effect the marketplace, and what savvy investors are doing to prepare for what could be a difficult road ahead for some.
- BRC Advisors’ Sean O’Shea said, as a result of the artificially low interest rates, “there’s been an imaginary profit that’s existed for a short period of time. Low interest rates have kept balls in the air past the peak of the cycle.”
- Barry Slatt Mortgage’s Michael Kaplan said, they are starting to “see more problems” with small, single tenant retail product. Though there’s plenty of “capital available” from life companies. It is just a matter of “where to put money to work and make a return.”
- SRS Real Estate Partners’ Patrick Luther said volumes are down, which likely means this market cycle has “run out of gas.”
Everyday Luxury
Luxury retail is about more than space, it is about creating an experience. Top retail brands, brokers and active CRE developers shared their strategies for success and what they are doing to stay ahead of the competition.
- Drybar’s Denyelle Bruno said, “Everyday luxury isn’t about need. It’s about want, and commodity versus luxury is not about price, but about freedom and ability.”
- NGKF’s Jay Luchs said, “The lifestyle element is so important, and the retailers that will survive are the ones who are always thinking ahead.”
- DJM Capital Partners’ Stenn Parton said, “We are in the business of influencing the way people feel. It’s about creating a hospitality-like environment, and enhancing the daily life of customers.”
- Irvine Co.’s Lori Pawley said, “Time is an everyday luxury, and there’s never enough of it.” That’s why Irvine Co. believes delivering “convenience is key.”
Investing in Retail: Strategies in 2017
Investors are looking at primary, secondary, and tertiary markets for new opportunities and portfolio growth. A panel of owners and brokers shared what factors are driving decisions today, and where investors are looking next as this sector continues to evolve.
- Passco’s Alan Clifton believes we’re at the “Elite Eight stage in the cycle,” in reference to the NCAA college basketball tournament underway as the panel began. We’re “close” to the final, “but the markets are moving well.” CBRE’s Alex Kozakov said they noticed a change in the investment market at the end of 2016. Noting, it takes “longer to sell” and there’s “uncertainty” stemming from interest rate increase inevitability, which is causing investors to “assess how to adjust.”
- Sterling Organization’s Jon Mendis said he believes the market is “far along” with some “dislocation on the tenant side,” which is introducing some “interesting opportunities on the value-add side.”
- TH Real Estate’s Scott Trafford said the “core product is gone. It has been cleaned out since mid-2016” in a “flight to quality.” There’s still value-add plays, but he believes we’re in the “latter part of the cycle.”
- Matthews Real Estate Investment Services’ El Warner noted that the numbers for January and February “were down 40% to 50% year over year,” partly due to market cycle factors, as well “unsettling” from the election, interest rates, as well as overall economy. He’s seeing a “gap right now between buyers and sellers as we work to get pricing right.”