Retail Development Prospects are Promising
There are no doubt challenges to deal with but, by all reports, the mood at this week’s International Council of Shopping Centers’ RECon event was upbeat as developers spoke about real estate prices moderating and the credit crunch showing signs of easing.
Stephen Kieras, senior vice president of development at Taubman, told Shopping Centers Today, “There’s no slowdown. In fact, we’re seeing a lot of opportunities come to us.” Taubman is pursuing projects both domestically and abroad.
“There’s a real sense of opportunity,” said Scott Schroeder, vice president of marketing at Developers Diversified Realty. “We’re excited.”
Attendees at the show, the largest gathering of retail real estate professional in the world, indicated that grocery and drugstore-anchored projects were high on the list because of the continuing demand for merchants that fill consumers’ everyday needs.
While the demand for retail projects remains fairly strong, tight credit has made it difficult recently to get projects done. Even that appears to be easing, according to Adam Raboy, managing director of the Credit Suisse Real Estate Finance and Securitization Group.
Speaking at the capital-markets session entitled “The End of Free Money,” Mr. Raboy said, “The light at the end of the tunnel is no longer an oncoming train,” he said. “By this time next year, the business should be back on its way to normalcy.”
Discussion Questions: What does the upbeat mood of real estate project developers say for the retail industry moving forward? What trends (size of projects, geography, green building, etc.) do you see having the greatest impact on retail real estate development companies going forward?
I’m certainly no expert in the field, and far be it from me to question the objectivity of a convention–might some people be a little bit…how shall we say…Babbitish–but aren’t we always told the country is (already) grossly overstored?
Upbeat or downbeat, it doesn’t matter. If just 25% are upbeat then that means there is still a lot of new development going to happen. I’m always encouraged after this show because the phone starts ringing. I think we will start to see more “green” developments. Not because anyone cares about being “green” but they care more about saving money. I think we will see more lifestyle centers replacing enclosed malls. Eventually, Sears will be unloading their stores that are currently comatose. Many of these buildings are aged and cap ex starved so look for them to be razed and replaced with something new and exciting.
It appears as though the larger firms with the most clout and often with international projects going are doing the best. Perhaps diversification in types of projects and their geographic location is what is necessary to stay ahead in retail development at present.
All throughout most of the metro areas there are numerous strip malls and enclosed shopping centers with vacancies and eyesores, even in the upscale neighborhoods. And yet, new shopping centers, new buildings, and new strip malls are rapidly being built while the old ones still stand. Retailers and realty companies need to work together better to revamp existing properties, or else tear them down and replace them, instead of leaving them stand with lots of vacancies.
I’ve talked with two people who went to the show this week and they had the exact opposite impression. One said everyone at the show was complaining about the lack of activity on the development front. The other said the industry is heading toward a crisis as tens of billions of dollars in short-term development loans come due in the next year. The way he heard it, banks aren’t willing to refinance a lot of these loans and shopping centers of all sizes may suffer for it. These are both reliable individuals with money in the shopping center game, so I don’t think they’re just being cynical.
One thing that amazed me about the show is that any convention in the retailing industry can still draw 50,000 attendees. The show was very high energy, with lots of show floor activity, meetings, and educational sessions. And, it ran four full days.
One obvious trend is the greening of retail development. There were several educational sessions and an entire pavilion called “The Green Zone.”
There is a lot of potential money to be made in new development and new development is going to occur.
I think the trend of open street type developments will continue and these are refreshing with a human and traditional scale and I for one appreciate the more traditional look. Some are even being built and planned with nearby living quarters of various types…Gee? Are these new mini towns? Call me dated but this is a refreshing development–that you can live near and walk to, and around, the local retail district! Especially timely, given our march to $5/gallon or more regular gas.
I ALSO agree that the older, empty “eyesore” centers and strips need to be raised.
Developers should take into account the big picture and not only think about retail development but also, community development. A plan on a larger scale will net much greater rewards and this will include and affect retail development as well. Financing of such large developments may be difficult and perhaps will require a multi company approach with various developers undertaking their parts with respect to their expertise.
Also, in respect to new store development, perhaps we will see more location replacement rather than a new site. For example, re-development of a former(ly great) “Mall” locations now gone sour (perhaps in one of our countless inner ring suburbs of any city), may include a location of a retailer to replace the former mall location in a new open air environment. Certainly, any one familiar with the retail or retail real estate industries can think of this occurring now–perhaps with a change in style of retailers–I can think of 5 right off the bat.
As a society, we are going to be forced to re-evaluate how and where we live and–for lack of a better term–“gentrification” may be a necessity, and a great growth opportunity as things continue to change. In a recent discussion, one poster noted that the suburbs will become the new ghettos and wealthier people will move back towards the centers, (OR, to where work is located) and I believe this poster to be correct. Sooner or later in time.
Of course this raises many difficulties, such as potential problems with the ground related to former industrial activity as well as the necessity of appropriate police support and presence, given possible locations where this may occur, once completed, to name only a few. For these reasons, we will likely continue to see development continuing to reach outward. Whether this is ultimately good or bad does not matter currently because it is easier.
Ultimately, retail development and retail redevelopment are both very promising.
I am quite excited about the future of the retail industry. Significant downturns flush out weak performers and redundant concepts and allow the innovative and the strong to find great opportunities for concept development and growth. Taubman is in a unique position due to international development that helps it weather the US domestic problems. They and others will continue to invest in great projects and we will see the credit crunch ease and good deals will get done.
Retailers with unique, successful concepts enjoy being wined and dined by mall developers desperate for anything that can drive traffic and make their locations special. Retailers with tired out me-too concepts are a dime a dozen, and have to take 1 mediocre and 1 lousy location to get 1 decent location from a good developer. These negotiating conditions aren’t new. This has been the situation since forever, in good times and bad.