Lifestyle Centers Have Become One of the Most Undervalued Retail Asset Classes

Lifestyle centers may be one of the most undervalued retail asset classes currently. According to JLL, increased customer foot traffic, declining vacancies coupled with growing rental rates and broad-based expansion plans from retailers are bolstering confidence and signaling that lifestyle centers will come back strongly.

While smaller grocery-anchored retail has dominated investment demand recently, the increase in vaccinations and re-openings is motivating shoppers – and investors – to return to other retail segments. 

Lifestyle centers were conceived as a modern-day interpretation of the mall and are known for their outdoor settings and incorporation of other uses like office, multi-housing and hospitality space. They also usually include upscale, national-chains, and specialty retail with dining and entertainment options.

Digitally Native Brands Join In

“Leasing demand from new tenants in the market, such as digitally native brands, as well as traditional mall retailers looking for an off-mall growth strategy, are accelerating the desirability of this asset class to consumers,” said Senior Managing Director Chris Angelone, JLL’s retail co-leader in capital markets. “Investors are taking notice and will seek out performance and growth potential. Two to four years from now, high-performing lifestyle centers will reclaim their spot as a trophy, core asset class among investors.”

Matt Hammond, SVP/Partner, Coreland Companies, tells GlobeSt, “Retail in this post-pandemic era is all about comfortable outdoor spaces. Customers are looking for restaurants with plenty of outdoor seating, amenities and shopping that does not mean entering an enclosed mall. Grocery-anchored shopping centers have driven tenant and investor demand for the last year-and-a-half. 

“It’s an extremely competitive market, whereas re-emerging lifestyle centers present growth opportunities. Amazon and GrubHub are convenient, but there comes a point when customers are ready to enjoy retail or restaurant experiences again.”

Owners Reinvesting to Improve Common Areas

Patrick Toomey, Executive Director, Institutional Property Advisors (IPA), tells GlobeSt, “Shopping center owners who have reinvested into improving common areas – particularly providing gatherings spots and open areas – are going to be more successful in the long run. 

“We are social beings and those centers that provide the opportunity to mingle safely will continue to grow in popularity. Retailer sales at these locations will, of course, be the ultimate litmus test, but the Data showing consumer travel patterns bodes well. Retail in general is coming back as an acceptable risk adjusted return asset as investors are seeing that retail did not fail dramatically as was feared at the onset of the COVID pandemic.

“Additionally: We have seen that post-pandemic a lot of consumers are engaging in ‘revenge spending’ which is driving sales and foot traffic. The most successful properties in the lifestyle category do an excellent job of placemaking and creating Instagram-worthy moments for their consumers.”

Phil Purdom, Director of Southeast Real Estate for Hines, says that “Lifestyle is now all working together, retail, residential and office are in sync. Millennials want to live, work, play and even walk their dog in one place.”

Lawrence “Larry” Taylor, Founder and Chairman of Christina, tells GlobeSt, “Though this is not a new concept, lifestyle centers are resurging in the post-COVID era given the ever-evolving demands of today’s consumers, which are largely propelled by accessibility and convenience. 

“Many lifestyle centers offer a tailored mix of retailers and eateries in a more intimate, community-focused, and pedestrian-friendly setting. Consumers are drawn to experiential shopping and dining destinations, and as a result, lifestyle centers have proven to be more adaptable, providing curated and personalized services that traditional malls cannot.”

Occupancy Strong at New Towne Centres

Monica Klawuhn, vice president of brokerage leasing firm Zuckerman Co., leads leasing efforts on a range of mixed-use projects in the Southeast, one being Mount Pleasant Towne Centre, located just outside of Charleston in Mount Pleasant, S.C. The 510,000-square-foot open-air lifestyle development is anchored by Belk and Regal Cinemas and notable national tenants include lululemon and Peloton.

The Towne Centre has fared well amidst the global pandemic, with occupancy remaining steady and vacancy never exceeding 5%. As revenge spending and pent-up demand increases, Klawuhn sees the continued success of high-density mixed-use destinations. 

She forecasts future trends for retail centers involving the rise of entertainment districts, digitally native brands opening brick-and-mortar stores, experiential retail, mall redevelopments, rollback of e-commerce, drive-thrus and walk-up windows plus parking spots dedicated to ride share, store returns and to-go delivery.

Compared to malls, lifestyle centers have the lowest average vacancy, 6.5% versus 6.8% for super regional malls and 10% for regional malls. According to JLL Research, during the second quarter of 2021, lifestyle centers are drawing 46% higher rents than regional malls and 11.5% higher rents than super regional malls.