RECon Speakers Tackle Retail’s Tough Issues

By Paul Rosta

Heather Arnold of Streetsense answers question from an audience member after RECon presentation.

At a time of rapid change and looming uncertainty for retail real estate, experts at RECon wasted no time before tackling the industry’s biggest issues during the first day of the International Council of Shopping Centers’ annual convention in Las Vegas.

The issue ahead is “how are we going to make the retail supply that we’re planning and projecting and built and received somehow match the retail spending that we have,” asserted Heather Arnold, director of research and analysis for Streetsense.

Speaking to a packed ballroom at the Westgate Hotel on Sunday afternoon, she cited the U.S.’s inventory of some 23 square feet of retail space per resident, about twice as much as Canada and triple the size of Europe’s market. Bringing the U.S. supply into equilibrium would require repurposing or demolishing at least 1 billion square feet of the 13 billion-square-foot U.S. retail market, she pointed out.

That excess by no means spells doom for brick-and-mortar retail real estate, he said, “but it’s going to be about getting smarter, especially when it comes to new development,” Arnold argued. Too often, developers want to build retail into a mixed-use project than demand justifies, she added. “What they want to do from a retail perspective almost always exceeds the retail opportunities that we can identify.”

One rule of thumb calls for 12 square feet of retail per residential unit in a mixed-use development, she noted. For a development with 3,000 apartments, that translates into only 36,000 square feet of retail, far less than the hundreds of thousands of square feet that a project sponsor often wants to build. “The worst thing you can do is build a building, put retail on the ground floor and you can’t fill it. We’re seeing this happen around the country.”

“In many of our projects, retail is transitioning from an NOI driver to an amenity one,” said Bruce Leonard, a principal at Streetsense. He reported advising a client that is developing a 7.5 million-square-foot mixed-use project in the Washington, D.C., metropolitan area: “Unless you build in an amenity, they’re not coming.”

Mixed-Use Needs and Wants

Yaromir Steiner, CEO of Steiner + Associates, meets audience members after RECon session.

Strategies for mixed-use were also the subject of a Sunday afternoon session led by Yaromir Steiner, the longtime developer and CEO of Steiner + Associates. “Retail always has to be studied independent of other uses,” he told another meeting room crowded with hundreds of real estate professionals.

Even in the absence of other property categories, he explained, a location must be capable of supporting retail. Steiner addressed the distinctions, and sometimes overlapping characteristics, between “need” and “want” retail. Depending on the intent of the customer, a visit to McDonald’s could be either a destination or a necessity, he explained.

Additional observations and advice offered by Steiner:

• On how retailers misfired in recent years: “All of their efforts went into out-Amazoning Amazon. They were not focusing on the customer and the customer experience.”
• In selecting a developer to handle a specific asset category, “Don’t bring someone in that you’ve never met before.”
• “You cannot force a public-private venture on the public. Some public leaders get it, some don’t, and you want the ones who get it.”
• “Really look at food and bars as anchors.” Restaurants provide an environment for socialization, which is particularly important for drawing customers from younger demographic groups.
• “Integrating affordable housing into mixed-use environments is going to be the next challenge.”