The COVID-19 pandemic accelerated trends in our work and home lives that were already underway. For many office workers, employers that previously embraced some workplace flexibility, permitting employees to work from home on occasion, are now experimenting with full-time flexible models and rethinking the physical workplace.
Similarly, the migration from in-store to online sales—that was already trending for office supplies and shoes—now includes an increasing percentage of online sales of groceries, home furnishings and many other consumer goods. Beyond online shopping, COVID-19 is accelerating retail trends regarding the customer experience and use of space.
Experiential retail spaces
As the shift to online retail sales increased in the several years before the pandemic, retailers and retail property owners embraced new experiential retail models. Coffee shops and restaurants, regional malls and lifestyle centers welcomed new retail-use concepts that embraced the engagement of the consumer with the space. Starbucks launched a 35,000-square foot Roastery concept store in Chicago in 2019. Reading Terminal in Philadelphia and Chelsea Market in New York City offered food halls that were the answer to tired mall food courts. The Apple store epitomized a new type of consumer shopping experience with plentiful interactive displays. Experiential retail was a component of omnichannel marketing that many brands embraced.
What made experiential retail work was the immersive environment. Communal food tables, interactive displays and personalized experiences made the consumer interaction an exciting draw. Experiential retail stores were a success because they created in-person, fun and social opportunities for screen-weary workers. The excitement, however, depended on highly curated, dense spaces with an emphasis on sharing and close social interaction which begs the question, “Is experiential retail over?”
Pandemic protocols and experiential interaction
The consumer experience moved from public spaces into private settings. We now avoid crowded grocery stores and retailers out of concern for our health. What used to be “fun” communal dining experiences have moved into our homes with takeout food and a small number of individuals who are in our COVID-19 bubbles.
Owners of commercial retail property and retailers are adapting. With indoor spaces operating at limited capacity, and in some cases feared by otherwise loyal patrons, the focus is on creating convenient parcel pickup processes. In the interim, outdoor food trucks and pop-up stores are replacing food halls. Development on retail outparcels for smaller footprint buildings and more accessible drive-through lanes will accelerate. Taco Bell announced a mobile pick-up only retail concept in August. Germany-based InFarm launched in-grocery-store hydroponic farms in the U.S. for a new type of experiential selling. Retailers are pivoting business models and with the changes, retail property owners and developers will identify new opportunities.
Industrial is retail. Retail is office. Restaurants are prep rooms.
Mixed-use property was historically considered the primary domain of dense business districts, with retail space on the ground floor and office space above. In the pandemic economy, empty department stores in shopping malls are becoming attractive distribution hubs. Retail centers are welcoming office uses into the tenant mix, accepting sectors such as medical clinics or alternative work locations for at-home employees into their retail space.
With a greater percentage of goods and groceries procured online, the demand for retail-related warehouse and distribution spaces, particularly within city centers, will increase to allow for more last-mile delivery. Target and Walmart will compete for spaces with Amazon as each retailer strives for same-day delivery.
For restaurants, ghost kitchen restaurants offer flexible menus and ubiquitous delivery. The ghost-kitchen business model does not require the best retail locations, as the work can be done in less expensive industrial and flex spaces. Former restaurant spaces may lease just the large prep space without the retail customer in mind. Restaurants will also share more of their “secret sauce” by hosting cooking and tasting classes online which require more kitchen “studio” space. Omnichannel restaurant marketing will include social media, online classes and on-demand delivery.
Pedestrian traffic needed
While ghost kitchens and small in-city distribution centers will take over some of the urban retail demand, what will become of the large regional malls or lifestyle centers that thrived on high pedestrian traffic and shopping entertainment? The post-pandemic retail environment will accelerate the existing trend away from large indoor malls, which will simply become obsolete. Some owners will breathe new life into these centers by converting a portion of the space—likely anchor stores—into multifamily housing, thereby creating on-site pedestrian traffic.
Daycare centers, co-working offices, self-service grocery stores and medical offices may help restore some of the pedestrian traffic deficit in these retail centers resulting from the closing of bars, restaurants and indoor entertainment venues. If employers embrace the flexible at-home workplace model, convenient services close to residential development will be in demand. These mixed uses, in turn, will drive traffic to the retail center.
Retail business models and properties pivot
In response to the pandemic, retailers and retail property owners are pivoting quickly to develop new space use models that will reinvigorate businesses and cash flows. Alternative models will force property owners to rethink the mix of tenants in their properties and strive for new types of mixed uses that maintain the buzz of an experiential space—albeit while remaining socially distant and largely outdoors.
For retailers considering their next property purchase or lease, they’ll be looking for properties that are versatile and provide a great in-store experience and online pick-up experience. For developers, the focus will be on providing space that can fit a variety of functions, whether for grocery tenants, medical tenants, office space or residential, and provide outdoor space.
Property owners will need a knowledgeable commercial real estate broker to help them find, lease or sell a property that meets their business needs and consumer expectations in today’s environment.
Dan Spiegel is a vice president and managing director for Coldwell Banker Commercial.