What’s Top of Mind for Retail Landlords Heading into 2024
In a year defined by post-Covid economic challenges, labor shortages, and staggering office vacancies, retail has miraculously come out on top. This past week, some members of the VTS team headed to ICSC New York, where we heard from industry leaders about their take on retail’s performance over the last year and what’s next to come.
If there’s one thing to know: Retail is back!
Read on to learn more about what’s top of mind for retail landlords as we head into 2024.
Consumer Behavior is Changing
In a post-Covid world, consumer behavior looks different than it did previously. With more “buy online, pick up in-store” arrangements, tenant sales per square foot have sky-rocketed. Both retailers and landlords have had to adapt to stay in line with changing consumer behavior and keep customers coming back.
A seamless, omnichannel experience, where in-store and online complement one another, is one strategy that is finding success. A report from ICSC revealed that retailers recognize more site traffic and a larger ‘shopping basket’ when opening a brick-and-mortar store in a new region. Further, online sales have actually been shown to fall after the close of a brick-and-mortar location, proving the staying power of physical shopping.
Despite many Americans pulling back on their non-discretionary spending in the last year, grocery-anchored shopping centers have continued to perform exceedingly well compared to other asset classes. As we look ahead to 2024, we imagine grocery-anchored retail and strip mall traffic and sales to remain resilient in the face of high interest rates and tightening wallets.
The Great AI Race
You’d be hard-pressed to find a company today that is not adopting or at least exploring AI in some capacity. In CRE, it’s no different. Leaders in the space explained that AI is not ‘coming to replace your job’, but instead to replace your tasks. Specifically, AI can replace the less-impactful and more time-consuming tasks, so you and your team can focus on strategic work.
An expert from JLL cited that their marketing and research teams are the heaviest users of an internal AI tool, and half of users who use the tool weekly are also using it daily.
Still, security and privacy concerns are top of mind when it comes to AI. Because of this, some companies, like JLL and Brixmor, are building in-house generative AI solutions to ensure the safety and security of their data.
In 2024, we expect the AI boom to continue. There is no shortage of solutions that leverage generative AI and large language models in the market today. As we look ahead, perhaps the most important thing will be evaluating which ones are right for you and your team and powered by a trusted source of data.
Capital Markets Outlook
The reality is, debt remains expensive to take on. But the view is far more rosy for retail than other sectors. Per CBRE, market fundamentals for the asset class are stronger than at any time since they began tracking in 2005. While a wave of loan maturities is coming due, only about 10-15% of those are retail. Overall, retail is performing better than broader capital markets and is expected to see continued growth into the next year and beyond.
The Role of the Landlord
Throughout every session at ICSC, there was consensus that the landlord’s role is changing. What used to be, at times, a tense push-and-pull relationship now needs to be more of a partnership between tenant and landlord.
The role of the landlord is as important as ever, and retailers rely on them to create a safe and clean environment that customers actually want to spend time in. During the pandemic, in-person retail ceased essentially overnight. Many retailers couldn’t afford their leases and were looking for ways to make ends meet.
During this time, innovation on all fronts was necessary to keep businesses afloat. Many retailers with an online presence made gains via ecommerce, but in some instances, landlords were able to help their tenants by turning centers into temporary fulfillment centers. “Shop online, pick up in-store” also became hugely popular to minimize in-store time and keep customers coming back. This swift thinking from retailers and landlords alike is what helped keep businesses alive during the worst of times.
Heading into 2024, it seems this newfound partnership is going to continue to be critical in attracting shoppers and keeping momentum going for retail.
Looking Ahead
While resilient, commercial real estate is undergoing a bit of an identity crisis, adapting to the new normal and trying to find footing in a rapidly changing world. The introduction of artificial intelligence, the shifts in market dynamics, and the changes in consumer behavior across the board have turned the industry upside down. While many businesses are still struggling to see the light at the end of the tunnel, many already have.
Those who have chosen to prioritize technology in their strategic decision making will come out on top, time and time again. While the road to recovery has been long, there are bountiful opportunities if you know where and how to find them. To learn more about how to uncover the tenant interest and seize the best opportunities in the market, book a demo with our team today.
