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part to advances in technology. These make it possible to tailor
<br />merchandising and engage with brands, uniquely targeting
<br />individual and local preferences.
<br />The Good News
<br />There are bright spots within the sector: some interviewees are
<br />noticing stabilized rents and strong leasing activity across a
<br />wide spectrum. Some see retailers at an expansionary inflec-
<br />tion point. As one respondent representing research services
<br />at a large commercial brokerage firm indicated, "Over the past
<br />several years, many retailers have directed their capital invest-
<br />ments toward digital platforms.... Now, with more competitive
<br />omni-channel strategies, they could be poised to proceed with
<br />needed reinvestment in their physical footprint."
<br />Shopping center owners have also become more creative
<br />about filling spaces and taking opportunities to creatively
<br />remake centers into hybrid formats that incorporate new ele-
<br />ments and experiences. As one interviewee involved in research
<br />services noted, "We've gotten through a 'use evolution' where
<br />landlords are no longer simply seeking to fill plain -white -vanilla
<br />boxes." A commercial real estate investment adviser noted,
<br />"This was not the case just two to four years ago." Said another
<br />involved retail market researcher, "This is creative destruction,
<br />or rationalization, where the death of one use brings about the
<br />rebirth of another."
<br />This rebirth responds to generational shifts in spending. As baby
<br />boomers edge closer to retirement, they are spending less on
<br />goods and directing more of their purchases toward medical
<br />needs, dining, and experiences. And millennials, as one real
<br />estate adviser noted, "also seem to be looking for less 'stuff' and
<br />more experiences." On the other hand, generation X consumers
<br />have entered "full -on family mode," spending more like past gen-
<br />erations on children and homes. One expert indicated that "while
<br />this increase in spending has been delayed compared to previ-
<br />ous generations, they are one of the stronger cohorts right now."
<br />What's Growing
<br />Tenant turnover requires shopping center owners to learn about
<br />whole new classes of tenants. Never before have there been
<br />as much appetite and need to experiment with new uses to build
<br />traffic. Even the best -performing assets will require significant
<br />future capital investment to reach a stabilized mix with a broader
<br />array of uses.
<br />A new crop of retailers have recognized the importance of phys-
<br />ical stores and they are slowly building out a brick -and -mortar
<br />footprint. Within top -tier assets, online brands are expanding
<br />further into brick -and -mortar spaces while legacy brands waver.
<br />As one representative of a large REIT indicated, "They are com-
<br />ing in a meaningful way and expanding beyond their initial 'high
<br />street locations.' But, diversifying our mix from weaker stores into
<br />a new collection of brands takes time." It was also noted that the
<br />process for deal -making has become longer and property net
<br />operating income (NOI) can lag in the interim.
<br />New experiential and entertainment uses, centered on
<br />one -of -a -kind activities, such as art, amusements, or food, are
<br />continuing to push the boundaries of what is supportable in
<br />shopping centers. Costar Group reports that the share of space
<br />devoted to restaurants, fitness centers, and entertainment has
<br />doubled over the past 10 years, while the share of apparel
<br />space continues to decline. "Ever -higher thresholds seem to
<br />be achievable, especially where there is a substantial influx
<br />from tourism," said one respondent in real estate services.
<br />Related to the trend toward experiential and entertainment uses
<br />is an ever-growing food and beverage category. There have
<br />been noticeable increases in food uses across retail venues,
<br />including food halls, which now seem ubiquitous in some areas.
<br />Not surprisingly, several respondents pointed to a potential glut
<br />in the food category (and more specifically food halls). However,
<br />there seems to be consensus that increases in food uses are
<br />likely. A trend toward healthier and more convenient food options
<br />also is evident as an alternative to conventional fast food.
<br />A third and growing component within shopping centers today
<br />is the increasing presence of fitness, health, and wellness
<br />uses. They may take the form of gyms (both boutique and
<br />value), but also high -end workout equipment dealers. Related to
<br />health and wellness, medical offices and clinics also are rapidly
<br />expanding their presence.
<br />A last area attracting widespread attention has been the
<br />introduction of coworking and shared office space within
<br />malls. Despite a flurry of fairly recent announcements over the
<br />past year or two, this phenomenon is still considered to be in
<br />its infancy and shows signs of strong growth potential. As one
<br />developer contact noted, "The idea is here to stay, although
<br />there could be a shakeout." Shopping centers have built-in
<br />amenities to support them, including unused space, parking,
<br />complementary food uses, and perhaps even a gym or workout
<br />facility. "It's a win/win," said one mall operator.
<br />70 Emerging Trends in Real Estate® 2020
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