Shopping Center Business

MAY 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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Page 142 of 270

RETAIL TRENDS food. You won't have the demand to sup- port that. It's very expensive to convert tra- ditional retail spaces into food and beverage spaces. Duct work, ventilation and parking are just a few examples of costs associated with making that conversion. And then con- verting back to a retail space is also expen- sive. So landlords are definitely investing in creating more food and beverage, but there is a little bit of a limit there to how much of a percentage they can dedicate to that. As more big box and anchor spaces come onto the market, owners will look at things like fitness, which was really big over the second half of last year. We'll see more of a demand for those kinds of tenants that come with credit, generate foot traffic and take pretty big spaces. SCB : What about popups and specialty retail? A lot of developers seem to be in- vesting in departments that run marketing, sponsorships and media sales for specialty retailers. CORDERO : Popups are going to continue to be big. For the past year, I've been talking about the institutionalization of popups. I think a few years ago, popups were relative- ly isolated but kind of exciting. Now they are becoming more mainstream. For the first time, landlords are working popups into their marketing and tenanting strate- gies. Traditionally, landlords have not want- ed to do short-term leases. It doesn't serve them financially or operationally. It doesn't give them the credit-worthiness and long- term guarantees that their investors want. And it's a lot of work to be re-tenanting and releasing every six to 12 months. You're not getting a lot of ROI from that. However, consumers are really drawn to it. And larger, more established retailers are also investing in the popup trend, which means that it's a way to start working with larger retailers. Say you've got a big athletic apparel brand, and they don't have a store in the mall. It's a way for the owner to invite them to come try out the space and convince them the mall is a great location. They can have them come in on a shorter lease, maybe six months, and convince them over that time to sign a longer lease. It's a strategy that landlords are developing because popups bring customers in and they bring great re- tailers in. You'll also see the larger mall land- lords continue to invest in incubator-type concepts. They're going out and identifying promising startup retailers that don't have the capital to open a fleet of stores or sign a 10-year lease. They are investing in those businesses by giving them spaces and work- ing with them on marketing. SCB : Some leasing departments have thinned out while specialty leasing seems to be ramping up. CORDERO : Yes, I don't think landlords want to be caught off guard and they don't want to be on the defensive. So the larger land- lords especially are trying to be on the of- fensive with their strategy. They're trying to get ahead of the big box closures and vacancies. They are really looking at their portfolios and their current tenants to iden- tify which ones are in danger of leaving. SCB : Are you seeing retail performing bet- ter in certain geographical areas or markets over others? CORDERO : As we saw in 2016 and 2017, we're continuing to note a growing gap be- tween the haves and the have-nots in terms of geography. We're going to continue to see a concentration of good performance in urban locations and in dense suburban areas. Unfortunately, B and C markets are going to continue to struggle and will have to adapt in different ways. There is a lot of interest from investors in urban retail, and a lot of retailers are investing in their ur- ban portfolios and storefronts. At the same time, however, a lot of investors are picking up what they perceive to be undervalued assets in B and C markets where they see turnaround opportunities. That's a good signal that there's still potential in those markets. But it will still be a challenge to take those locations in B and C markets and get them ready for that retail 2.0. SCB : Have you seen any innovative success stories yet from those types of properties? CORDERO : Absolutely, there is a big segment of the market that consists of assets that are in decent markets that have potential, they just need to be re-tenanted and reinvested in. In a lot of cases, the current owners just aren't able to make that investment. Those are clear investment opportunities, and in- vestors are really seeing that. They can buy 138 • SHOPPING CENTER BUSINESS • May 2018

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