The Trends Reshaping Retail Real Estate In 2024 - Sun and Planets Spirituality AYINRIN
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The
retail real estate landscape underwent various changes in 2023 that
will likely be maintained in 2024. It has been impacted by evolving
consumer preferences and the supply of quality retail, changing the
types of tenants driving demand and the types of centers supplying it.
Through various conversations with industry and data experts, a few key
trends rose to the top, including wellness as a notable growing tenant,
neighborhood centers and streets as popular properties for leasing and
investment, and a scarce supply fueling a competitive market.
Wellness Takes Center Stage
In
general, wellness is a sector on the rise. It's not merely a consumer
choice for health-conscious products but a shift in how consumers engage
with wellness-oriented brands, emphasizing experience in retail stores.
This transformation mirrors a broader societal shift towards holistic
health, where consumers seek products and services that align with their
well-being goals. According to McKinsey,
"around 50 percent of US consumers now report wellness as a top
priority in their day-to-day lives, a significant rise from 42 percent
in 2020." Therefore, it's no surprise that wellness is also rising in
retail real estate.
"Regarding
wellness, the category is booming, but I feel strongly we're still in
the early innings and not slowing down. Clean Market at Brookfield Place
and Reset by Therabody, Silver Mirror, and Peachy at Manhattan West are
all recent wellness additions to our portfolio. The consumer demand
demonstrates that these experiences and brands are now essential to
routines, whether it be daily, weekly, or monthly," said Jason Maurer,
Executive Vice President of National Urban Retail for Brookfield Properties.
The
number of wellness retail openings increased by 2.8% in 2023, or about
five thousand new stores, based on chain opening data from ChainXY.
In comparison, the luxury sector saw a 3.9% decline, and the jewelry
sector a 1% decline. Although it may not be the only industry on the
rise, it is undoubtedly making an impact and filling up a notable amount
of tenant space.
Embracing Community In Streets And Neighborhood Centers
As
the top retail malls fill up with tenants, it's become increasingly
common to see brands enter nearby neighborhood centers or freestanding
locations. While street locations like Abbot Kinney in LA and South
Congress in Austin continue to maintain popularity, streets in smaller
towns, especially those that are alternatives to bigger more expensive
malls, are gaining traction. For example, Downtown Birmingham in
Michigan and Downtown Naperville outside of Chicago. Similarly,
neighborhood centers like Brentwood Country Mart in LA and Lido Marina
Village in Newport Beach are acting as quality alternatives to bigger
malls and centers.
"The
vast majority of tenant demand formation is flowing into freestanding
properties and neighborhood centers, but all segments recorded growth in
2023. As far as investors are concerned, the same story is true, where
the greatest focus has been on freestanding properties and neighborhood
centers. The investor profile for the two segments looks very different,
but both segments are generally targeted for their relatively stable
yields," stated Brandon Svec, National Director of Retail Analytics at CoStar.
The
narrative is evolving from towering shopping malls to the allure of
freestanding structures and neighborhood centers. Consumers are no
longer satisfied with mere transactions; they crave community-centric
experiences. This renaissance of local shopping hubs isn't merely a
consumer-driven shift but a strategic pivot by retailers. Perhaps it
aligns with the prevailing trend of supporting local businesses, tapping
into the desire for authenticity and personalized connections. However,
it’s more likely being led by limited supply of spaces at larger
quality malls and lifestyle centers.
Navigating Limited Spaces In A Competitive Market
In
December of 2023, the retail vacancy rate across the US was 4.6%, the
lowest level recorded by the CoStar group since they began tracking it
in 2007. This is both due to high demand from tenants and low supply.
"On
the supply side, construction was started on just 46 million square
feet of retail space in 2023 compared to nearly 82 million in 2022,
largely due to increased financing costs, reduced capital availability,
and still-elevated input costs like land and materials. The lack of
available space was further witnessed by the demolition of obsolete
retail space, with more than 18 million square feet demolished in 2023,"
underscores Svec. "Plenty of demand exists for prime retail corridors,
and given the sparse supply outlook, the probability remains high that
the US retail space market will remain tight in 2024."
Amidst
soaring demand, the quest for prime retail corridors intensifies.
High-quality retail spaces are no longer just desirable; they're
essential for those striving to carve their niche in a fiercely
competitive market. "The biggest change we're seeing in the industry is
the pace at which retail is evolving. Tenants today may not know exactly
what their business looks like in three to five years," stated Maurer.
This new pace requires landlords to be agile, but it also requires
tenants to stay competitive.
Beyond
the competition, the scarcity has shifted how retailers approach real
estate. It's no longer just about securing space but leveraging limited
spaces to create a unique and memorable brand experience. Landlords are
doing the same to maintain tenants. For instance, Brookfield's marketing
and events team is vital in supporting tenants with programs like its
annual festival for local brewers called Brews at Brookfield Place in
Manhattan.
As
retailers navigate these narratives, the retail real estate landscape
of 2024 reflects a dynamic interplay between consumer values, limited
supply, and shifting demand. The threads of wellness, community-centric
experiences, and the challenge of limited spaces intertwine, telling a
story of transformation that propels the retail sector into a new and
exciting year.
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