One could argue that the retail sector is one of the most rapidly changing and evolving sectors in the real estate industry. With shifting demographics, changing customer buying habits, and advancements in technology, the sector is at a very tangible moment of flux.
To get a better sense of this flux, I reached out to retail expert Michael Lagazo to learn more about the trends and changes in the market. Michael, a Senior Associate with Rosano Partners in San Diego, is one of the industries’ go-to authorities on emerging retail trends. Michael has been featured in the Wall Street Journal, Commercial Property Executive, and Shopping Centers Today—on top of being a regular organizer and speaker at numerous commercial real estate conferences nationwide. In fact, Michael and I postponed our discussion about the retail industry several days because he wanted to include a few up to the minute notes from his participation in Retail Live L.A.
- Fresh off the Retail Live L.A. Conference, what are some of the current market trends that we should be aware of?
First, I would like to thank Michael and Stacey Gilham for hosting an excellent networking event. Comments on the trade show floor complimented the quality of conversations directly with retailers and shopping center landlords. As promised, the food and entertainment were remarkable.
National credit tenants are finding ways to expand in an environment where value and discount is thriving. Many consumers are poorer than before the recession. Private equity firms are funding acquisition and consolidation. Majority owners are more actively participating in operations than pre-recessionary periods. Merchants are taking on more risk in pursuit of sustainable yield. For example, a national drug store chain has refinanced debt to fund expansion.
Several retailers were represented at the conference but most were food and beverage vendors including restaurant groups based on the east coast and in the Midwest expanding west to follow biotech and technology job creation from Los Angeles to San Diego, CA.
- The retail sector has been going through adjustments over the past few years (from changes in technology, consumer buying habits, etc.), how are landlords, tenants, developers, and brokers adapting to these changes?
Value and discount merchants are competing directly with each other even occupying sites to remove a competitor’s option from a trade area. Big box retailers are embracing express or compact store formats of 40,000 square feet or smaller. Surplus retail space is being repurposed for mixed-use or office. Merchants are embracing more diverse product offerings. For example, non-club bulk item retailers are selling groceries and daily needs items in the same store as office supplies.
- Where do you see opportunity in the retail sector given current market conditions? Are there any new markets or niches that are small now but could take off?
Investors are purging their portfolios to free up capital to pursue trophy and class A projects. The flight to quality continues as merchants relocate to better centers. Opportunities exist in buying income producing retail assets before bottle-necked demand and mainstream rhetoric drives artificial price appreciation.
The present climate makes it easy to differentiate which shopping center got the leasing strategy right and which missed the mark. An innovative era in which in-store and e-commerce experiences are not so discrete will foster innovative concepts like Bonobos, Warby Parker, Keaton Row, and Hointer.
- What do you find most exciting about the retail sector right now?
The convergence of technologies is changing how we live, work, and shop. Brick-and-mortar stores are still the most immersive places for shoppers to encounter a brand, however, mobile is the face of engagement. Projects like The Peterson Companies’ National Harbor and North American Properties’ Atlantic Station are examples of shifts towards experiential shopping.
Finding new ways to create a virtual place for shoppers to experience one’s brand is exciting. The technology is secondary to strategy. A linear purchasing decision has been replaced with concentric circles (circles within circles). Shoppers draw impressions about brands through interactions with friends and family, through conventional and social media, as well as engage the brand virtually on multiple devices.
- How do you tweet so much?!
Quick editor’s note: Michael is one of the most followed commercial real estate experts on Twitter. Many real estate professionals, including myself, follow his 100,000+ tweets for breaking industry news and emerging trends. If you’re trying to gauge the pulse of commercial real estate, Michael is one of the best resources on Twitter.
I’ve always been a student of the real estate game and remain inquisitive. I stay plugged in via mobile, tablet, and PC to learn and share content that may be useful to other CRE people.
You can follow Michael on Twitter here: @Michael_MBA.
- What excites you about Rosano Partners and working in the southern California commercial real estate market?
Managing top regional malls for leading REITs and later liquidating assets in receivership has given me a chance to solve many diverse and complex problems at times under difficult conditions. I offer retail services including agency leasing, portfolio leasing, and investment sales for investors in southern California.