CBRE: Optimistic Outlook and Redevelopment Strategies in Retail

CBRE chatted with GlobeSt.com about all things retail surrounding the ICSC Las Vegas event where one source reveals the surprising rebound of class B malls and their redevelopment prospects, while another identifies thriving markets, population growth, and migration as key factors for retail success.

LAS VEGAS—GlobeSt.com had the opportunity to catch up with CBRE during the recent ICSC Las Vegas event to delve into the latest trends shaping the retail market. Todd Caruso, CBRE’s Retail Investor and Services Lead, Americas, emphasized that despite the prevailing uncertain economy, high interest rates, and other challenges, the fundamentals of the retail sector remain robust. Caruso asserted that investors who adapt to the changing landscape can tap into unmet demand for retail spaces.

Caruso further highlighted the remarkable opportunities available for patient, long-term capital in slowly recovering high street districts and well-located large format properties that hold potential for additional development and adaptive reuse. He added, “We can expect to see further expansion from retailers in tertiary markets, which will help offset the tightness in availability experienced in some major markets.”

When discussing the trends in class B and lesser mall redevelopments, Mark Hunter, the managing director of retail asset services at CBRE, revealed that class B malls have exhibited a stronger rebound from the pandemic than anticipated, boasting higher sales and occupancy rates. Hunter attributed this resilience to various factors, including the presence of suburban markets where many employees continue to work from home and shop at nearby malls, limited new retail construction, and the influx of new and expanding tenants, all contributing to resilient consumer spending.

Hunter went on to explain that class B malls showing market demand, entitlements, and available space will continue to undergo redevelopment, accommodating non-retail uses such as residential, co-working, medical, education, and hotel facilities. While class C malls face greater challenges, Hunter stated that, overall, they have stabilized. However, these malls are more likely to witness significant redevelopment, including total repurposing of the site in some cases. “Class A malls continue to lead the pack with high occupancy, sales growth, and favorable rent spreads. Generally, for A and B malls where ownership possesses the right basis, capital, and entitlements, the redevelopment trend will focus on transforming the sites into vibrant ‘shop, work, play, and live’ environments.”

Regarding tenants moving out of mall spaces, Hunter noted that several tenants and uses are backfilling vacant spaces. These include retail uses such as entertainment, big box discount retailers, grocers, furniture, and fitness centers, as well as non-retail uses such as residential, medical, education, co-working, sports facilities, and call centers.

In terms of recessionary times, Brandon Isner, Head of Americas Retail Research, shared that retailers have a range of strategies to navigate challenging economic conditions. During recessions, consumers often scale back their discretionary purchases, opting to shop more at discount stores and grocery outlets. Notably, grocery sales tend to increase during economic downturns, as people eat out less frequently. Isner emphasized that retailers who have secured prime spaces in tight, well-performing submarkets will forge ahead with their expansion plans.

Looking ahead to 2023, Brandon Isner, Head of Americas Retail Research, expressed that although absorption rates have slowed in the past three quarters, they still remain positive. Some retailers have scaled back their expansion plans, but growth-minded retailers will continue with their strategies, particularly if they have projects underway in top submarkets where availability is significantly tighter compared to the overall market. Isner added, “For the U.S. retail market as a whole, the current 4.8% availability rate represents the lowest on record.”

When talking about specific markets that are performing well, Isner says that some legacy markets are picking up momentum, such as Chicago and Philadelphia. Houston remains a great retail market, and is one of the few markets which has been developing new retail, he adds. Phoenix has been a strong market for several years now, and had a great start to 2023.

Miami and Orlando also remain in high demand, he adds. “There are varied reasons on why a market will outperform. Population growth is a big piece, but so is the strength of the local economy, tourism, and net migration. Tertiary markets have experienced significant growth in population over the last several years, due to net migration.”

Stay tuned for more coverage of the ICSC Las Vegas event from GlobeSt.com, including exclusive insights from attendees. Also, check out the related stories already posted below:

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