There are many variations and styles of retail centers that have been built over the last 50 years or so. Some different types of centers go in and out of desirability based on how people are choosing to live, and it changes over the decades.
I remember growing up in the 1980’s you mainly had big enclosed malls. In smaller suburban areas that were emerging and growing, my parents drove me once every 1-2 weeks to the mall and it took 45 minutes to get there. Before the internet became popular you could see all kinds of merchandise not available anywhere else. It was an amazing experience and fun times.
Today most items for merchandise can be found on the internet more than in a brick and mortar store. As consumers can more easily obtain items for purchase 10 to 15 minutes from their house they no longer have a need to patronize these larger malls. The malls are often outdated and have high rents the tenants pay with less foot traffic to generate sales because the main shopping anchors like Macy’s and other brands have shut down those locations and are no longer in business.
There are still some newer built open air malls with high end brands well located right off of an interstate exit that still do well. One is close to where I live— the Outlet Shoppes of Atlanta. You can walk around outside in the fresh air and then hop in and out of designer brand stores. I have found when you are spending higher amounts of money for luxury name brands you want to see it in person and try it on first. Consumers tend to take a chance more on cheaper type products online where if the product is not up to standards they usually write off the low amount of dollars spent on it. I just went the other day to the Outlet Shoppes and bought some higher end Oakley sunglasses. I was replacing my older ones but did not know the model and the salesperson knew right away. There is something to be said for in-person customer service and product knowledge that can’t be replaced online. In fact some stores that went to online are now venturing back into physical space. They have found paying for keywords online and competing there can be more expensive than having a brick and mortar store with high foot traffic from customers. There has been a synergy and evolution happening in the retail space with businesses trying to figure out the right ratio for online versus brick and mortar sales. This is called Omni Channel marketing. This has been going on the for last decade from about years 2010 to 2022.
Large Name Brand Stores
Larger name brand clothing type stores such as Kohl’s have gone from 150,000 sq. ft. stores to about 60,000 to 80,000 sq. ft. They figured out the optimal space for their brand for in person sales versus online.
This is why I feel retail is well positioned for the future. Retail has been evolving and figuring out what the baseline is for the new normal.
If most malls are dying or dead with a few exceptions then where do most people go?
It’s the neighborhood street retail centers that are popular these days. These types of centers have essential based retailers (think food, salon, karate school, medical, etc.) often 10 to 15 minutes from where the consumer lives. Consumers often want convenience and getting many things accomplished in one spot. As an example a mom could drop the kids off at Karate, go to a nail salon, and then pick up pizza for dinner on the way home all in the same place. Talk about time saved! Consumers are creatures of comfort, habits, and consistency. They follow the path of least resistance to make their lives as simple as possible.
Not all neighborhood street retail is created equal.
The tenant mix, the positioning of the center, which large anchors are around it, the parking ratio, where parking is located, the construction quality and design, and much more can all play a part in a hero or a zero of a property. One makes you and the tenants money and has happy ratings from the consumers and the other is a constant money pit with tenants leaving the center, only attracting sub-standard tenants, constant consumer complaints, and giving constant headaches to the landlord with little cash flow to show for it.
Another retail center that individual high net worth investors can find attractive is the inline retail centers or grocery anchored centers. These centers can have a Publix, Kroger, Walmart etc. as the main anchor and then the retail centers are inline spaces connected to the main building in the middle. The anchors can be high daily traffic draws for consumers to visit the area. The properties could have the middle anchor store as part of the sale or could have just the retail center strip attached on both the left or right sides. With these centers you have to watch out for co-tenant anchor clauses where if the main tenant goes out the smaller tenants can terminate the lease early or severely reduce the rent rate they pay.
There are other types of centers such as Outlet, Theme, Power, Regional, Super-Regional, Community, and Fashion. These centers are very large in size typically many hundreds of thousands of feet into the millions of sq. ft. and although some individual investors own some of them, the majority are owned by REIT’s, insurance companies, pension funds, etc. These properties often cost high 8 figures into 9 figures per property so most of my individual high net worth clients prefer to own smaller centers as to not have a super high concentration of wealth into one place.