No one denies that the nation’s retail sector is evolving. Retailers today have to change or, as the fate of once-dominant retailers such as Sears and Toys R Us proves, they will fall into bankruptcy. But there are signs of hope in this sector, if you look in the right places.
Marcus & Millichap in November released a special retail investment report, analyzing the state of the retail sector today. It’s findings? They are definitely mixed.
Marcus & Millichap reported that the retail sector, even while negative headlines continually hit it, is showing signs of improvement. These signs? Marcus & Millichap points to lower vacancy rates and increasing rents. According to the report, a slower pace of construction in this sector has provided a boost to its overall health.
This doesn’t mean that the retail sector isn’t still facing challenges. In its report, Marcus & Millichap cites the changing demands of consumers. Today, consumers want a shopping trip that is focused on experiences that they can’t get elsewhere. That’s why restaurants, high-end movie theaters and adult-focused entertainment centers are performing so well today.
Some owners have reacted to these changing demands by upgrading their retail space to provide these experiences, Marcus & Millichap writes. Think of regional shopping malls that are adding tenants such as Round 1, entertainment centers that include bowling and arcade games targeted not just to kids but adults, too. These entertainment centers help draw more shppers to a center.
Other owners are not willing to make the investments needed to meet the evolving demands of shoppers. They are instead choosing to dispose of their properties. This, Marcus & Millichap says, leaves opportunities for other investors.
Another positive trend for retailers? Marcus & Millichap reports that an improving national economy and low unemployment rates have given consumers more money to spend. This, of course, has benefitted the sector, as higher levels of consumer confidence are translating to more spending at malls, strip centers and power centers.
These positive factors mean that the retail vacancy rate now sits at its lowest point since 2007, with the rate expected to drop even further by the end of this year, Marcus & Millichap says. Savvy owners have brought in tenants that are resistant to online shopping – everything from restaurants to fitness centers – and filtered out those tenants most vulnerable to e-commerce.