The brick-and-mortar pharmaceutical space might be the next retail segment to undergo a transition, GlobeSt.com found out during an interview with Barbara Armendariz, president of Sharpline Commercial Partners, on the retail market. It is no secret that retail has been evolving has consumer needs change and ecommerce add competition. We sat down with her for an exclusive interview to find out what to expect from the retail market in 2018, which tenants are growing and which ones are in danger—and how she is advising her clients.
GlobeSt.com: What is your outlook for LA retail this year?
Barbara Armendariz: Retail has been undergoing a rapid evolution that has captured the attention of not only the greater commercial real estate community, but consumers as well. E-commerce and bricks-and-mortar are beginning to work in a more streamlined and symbiotic relationship. E-commerce companies once vowed never to open a physical store, however, now we begin to see more and more e-commerce tenants embracing brick-and-mortar. As these two platforms continue to merge and learn to understand each other, it adds another layer to the retail evolution. Perhaps one of the best timely examples is Amazon Books, a brick-and-mortar store. Amazon has opened a dozen of these stores nationally including one at the newly re-opened Westfield Century City Mall.
In addition to new concepts which are created to capture the attention of shoppers seeking out a buying experience, what I call the “usual suspects” (retailers that have been unaffected by e-commerce) are showing an extreme amount of interest in new locations and are eager to open stores. Unfortunately, tenants are finding that there aren't enough available spaces in their desired locations to fulfill their specific expansion needs. As retail gets squeezed in the LA area, we can expect to see owners renovate their well-located older centers in order to capture some of that demand while some centers in C locations may be repurposed for another use such as residential or industrial. ·
GlobeSt.com: What tenants are growing and why?
Armendariz: The grocery segment is growing specifically within the discount and ethic niches. These types of grocers are thriving because they are largely unaffected by e-commerce. Although customers can buy groceries online, they are paying a premium for items especially when it comes to ethnic, specialty foods and deep discounts you can find in-store just can't be achieved online. We are working with an Asian grocery chain currently that is looking to open five new stores ranging from 35,000 to 50,000 square feet in the greater Los Angeles area. That is aggressive by any means, but this grocer understands its target demographic and the demand is not being met at this point in certain areas.
GlobeSt.com: What types of tenants are in danger and why?
Armendariz: Although the brick-and-mortar pharmaceutical segment is not in danger any time soon, it is next in line for an e-commerce shake-up. The need for brick-and-mortar pharmaceutical space will more than likely decrease in coming years.
A few examples of changing times in this industry include: Amazon, Berkshire Hathaway and JP Morgan are working together to form an independent healthcare company for their employees. Amazon has been actively looking to acquire wholesale licenses for pharmaceuticals. CVS purchased Aetna, the nation's third largest insurer.
I anticipate that over the coming years CVS, along with Rite Aid and Walgreens, will need to downsize their locations. 3,500 to 5,000 square feet is more than enough space for them to operate efficiently. If they downsize convenience items they could potentially operate in about 2,500 square feet of space. Just picture a 2,500-square-foot CVS with a drive-thru on a hard corner … Starbucks will have a new competitor for that attractive pad!
GlobeSt.com: How are you advising your user clients on site selection in the LA region?
Armendariz: We are looking for off-market transactions, tracking expiration dates and seeking redevelopment and repurposing locations as strategic locations are scarce. Creativity is key in this market.
GlobeSt.com: How are you advising your landlord clients on site selection in the LA region?
Armendariz: We are advising them on taking a step back in order to really evaluate their property's highest and best use. One developer I work with was surprised to know that the site he thought would be great for retail was better suited for industrial distribution use for e-commerce users. The relationship between retail and industrial will only continue to grow and e-commerce users are willing to pay a premium for location on par with what brick-and-mortar retailers will pay.
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Kelsi Maree Borland
