Curbside pick-up. Smaller footprints. Consolidating locations. Filling big-box space that is selling at a discount. An unquenchable desire for drive-thru locations. Swarms of food trucks. Retailers are embracing all of these strategies — and more — to keep business strong in a post-pandemic world.
So far? These changes are paying off. Retailers across the Midwest are enjoying a bounce-back year in 2022. And there doesn’t seem to be any slowdown looming, even with the threat of rising interest rates looming over all businesses.
We spoke with Daniel Brocato, vice president with Block & Company, Inc., Realtors, in Kansas City, Missouri, about the reasons behind the big year in retail leases and sales. Here is some of what he had to say.
How is the retail sector faring in the Kansas City market today?
Daniel Brocato: Retail has bounced back. It is almost better than pre-pandemic levels. The biggest issue that retailers are facing is employing people to work for them. There is so much demand for people to work at these jobs that they are facing a lot of competition for employees. That is making it more difficult for retailers to open and operate as many locations as they might want.
Overall, though, leasing activity has greatly increased this year. We are seeing a lot less vacancy overall. As far as new construction, though, that has been a bit slower. Construction costs are so high that a lot of retailers, and I’m talking more of the local mom-and-pop types, have opted to lease space as opposed to buying new construction. The more turnkey the better today with the rising construction costs and lead times. It is taking so much longer for construction materials to ship. I had one client who was quoted a wait of five or six months for an AC unit to be delivered.
What are retailers doing to deal with the labor shortage? I am working with a daycare that had three locations. Last year, it sold one for them. A different daycare opened there. My client closed its second location recently and consolidated all its operations into one location. That solution is not ideal, but it has worked for a lot of people who are having staffing problems. Business owners take on less square footage, consolidating their locations because they can’t staff and keep operating multiple spots. Restaurants that used to operate a 5,000-square-foot space now want 2,000 to 2,500 square feet. Now they want a kitchen, an area to pick up food and a couple of dining area seats. That type of downsizing had been happening for the past several years before COVID. COVID just amplified this trend of retailers minimizing what they need.
Speaking of COVID, have retailers retained many of the shopping options they enacted during the pandemic?
Brocato: They have. Curbside pickup changed the way consumers thought about doing things. Places like Walmart, Price Chopper and Target were doing curbside pickup prior to COVID. The pandemic just amplified the importance of services like this. Now we are seeing designated parking spaces for curbside pickup outside many retailers. People are comfortable with his service. Someone might not have done curbside pickup or online ordering before the pandemic, but COVID forced them to try it. Because of this, it has become a new way of doing things for a lot of shoppers. It is still a main focus of retailers to have that curbside or pick-up to-go locations designated. Restaurants in general are looking for drive-thru space. And that is nearly impossible to find in Kansas City right now. During the past year, every restaurant wants to go drive-thru. Panera Bread is shifting all to drive-thru. Chipotle is doing the same thing. They are not opneing any new locations without drive-thru.
Just look at Panera. It used to want 6,000 square feet and an open area for seating. Now Panera wants closer to 4,000 square feet for their locations. It has deducted about 2,000 square feet from its general space and added the drive-thru. That is the common trend overall. That is the general idea with all restaurants and retailers. If they can get a drive-thru, they want it.
What other new trends are you seeing among retilers?
Brocato: We are seeing a lot of restaurants that formerly had multiple locations consolidate into one or two locations. We have seen the addition of a lot of food trucks during the last year. We have a Mexican restaurant that used to open one location a year. This client is now down to two locations. But it has three or four food trucks busting all over Kansas City. It is a different way to adapt. If another form of COVID comes out, these restaurants will now have the freedom to still operate and make an income. Tensions have been mostly eliminated as far as COVID goes in the Kansas City market, but the pandemic is still in the back of everyone’s mind.
I did a deal last year with a client that leased out a space in a strip shopping center. They intended to build out the interior space. Instead, they parked food truck out front of their space and used the strip center space to store their supplies and make their food. They now serve their food out of the food truck parked in front. People have gotten really creative. We have a barbecue restaurant in Kansas City that has a vending machine that they stock at around 10 in the morning. Customers can also go to that vending machine and get barbecue sauce and pulled pork sandwiches. People are ordering that way.
Are there any new retailers coming into the Kansas City market today?
Brocato: One of the biggest new retailers is Ollie’s Bargain Outlet. They have been opening new locations across the Midwest. They have been in Wichita, Kansas, now they have opened two locations in Kansas City and another in Overland Park, Kansas. This is a good opportunity for them. All these big-box spaces have gone dark during the past several years. Major anchor tenants went to junior boxes. That meant an opportunity for Ollie’s to take advantage of these empty bigger spaces. Ollie’s is the biggest new arrival to our market as far as square footage goes.
What are some of the positives of doing business in the Kansas City market?
Brocato: Kansas City is the best of all worlds. We have enough of a downtown that you can really enjoy living here if you are from a bigger city. We are not Chicago or New York City, but you still get that big-city feel. But you also get the small-town feel. And the suburbs of Kansas City are very well built-out without being overbuilt. Our highway system is great. You can get anywhere within 45 minutes. There is still a local art-type feel in our arts districts, in neighborhoods like Midtown, Westport and the Crossroads areas. The cost-of-living is good here, too. Overland Park in Kansas has been on top-10 lists for raising a family for years. The list goes on. We have a great food scene. We have a mix of everything you’d want in a city.
What do you see for the immediate future of the retail market? Do you think the rebound will continue?
Brocato: Coming out of COVID, so many people want to do something. They want to get out of the house. They want to go to an entertainment venue or shop at an actual store instead of sitting in their sweatpants for three weeks straight and ordering everything online. The rest of the year looks to be strong for retail, and I expect the increased activity to bleed into next year, too.