After two years that have trimmed the retail field and chastened the remaining players, the most compelling questions concern what retail real estate will look like when it inevitably mounts a comeback. A preview suggests that by early in the next decade, retail real estate will look much different from the pre-recession model.The full implications of the retail industry shakeout will take several years to unfold, but the shrinking field of retailers will continue to pose challenges for several years. It should take several years for the industry to absorb the demise of dozens of leading brands like Circuit City, Linens \u2018n Things and Mervyns. Jeff Green, a California-based retail consultant, estimates that overall retail occupancy will settle at 80 to 85 percent of pre-recession levels by the end of 2010. Well-located, Class A centers in demographically sound areas will survive the purge, but the B-minus- and C-caliber properties may not survive. \u201cFor a lot of them, the value is in the land, not in the building, so they may be demolished,\u201d Green said. \u201cIt\u2019s very hard to use a full mall.\u201d He cited the pending liquidation of the Gottschalks chain\u2019s 61 stores in six Western states, a turn of events that Green termed \u201cthe first nail in the coffin\u201d for many of its centers.Additional retailer exits are on the horizon, if at a slower pace. \u201cI\u2019ve got to believe there will be some consolidation in the office-supply business,\u201d said Bernard Haddigan, senior vice president & managing director for Marcus & Millichap Real Estate Investment Services Inc.\u2019s national retail group. Market demand just may not be big enough to sustain the Staples, Office Max and Office Depot brands.Filling new product and backfilling vacated space will be an uphill battle for the next few years, but a slowing development pipeline will eventually help ease the problem. \u201cOne of the few bright spots in all of this is that there has generally not been overbuilding,\u201d said David Jacobstein, a senior adviser for Deloitte L.L.P.\u2019s real estate group and a former president & COO of Developers Diversified Realty Corp. Some 90 million square feet of new retail inventory is expected to come online this year, the lowest total since 1995 and a 40 million-square-foot decrease compared to 2008, according to Marcus & Millichap\u2019s annual national retail report.Another fundamental question is how rapidly consumer spending will bounce back. Consumers and retail real estate executives seem to be split down the middle in their economic outlooks. The International Council of Shopping Centers\u2019 most recent monthly survey showed a slight retreat in executive confidence from March to April. The benchmark indicator for the industry\u2019s six-month outlook dipped from 39.1 to 36.8, showing executive expectations have declined after a modest rally earlier this year. When it comes to current economic conditions, the public is still cautious. In the Reuters\/University of Michigan consumer confidence index for May, the assessment of the current climate slipped from 68.3 to 66.2. But expectations are brightening; the consumer outlook in this month\u2019s Reuters\/Michigan survey jumped from 63.1 to 69. Those results were corroborated by another national study of consumer attitudes. The Conference Board\u2019s most recent consumer confidence index, which measures expectations for the next six months, jumped from 30.2 to 49.5 in April.\u201cI don\u2019t believe in the theory that the American consumer has gone away,\u201d said Michael Glimcher, chairman of Glimcher Realty Trust, which owns or co-owns 21 million square feet of retail assets across 14 states. Observers seem to agree that the most trying economic conditions since the Great Depression will not permanently hold down consumer spending. The relatively strong sales of Wal-Mart, Target, BJ\u2019s Wholesale Club and other discount retailers compared with the declining performance of high-end stores is the most tangible sign of the consumer\u2019s flight to value. But veteran executives also stress that value has taken on an even more important role in consumers\u2019 mind, and that shift will shape retail real estate opportunities and strategies.Is the enthusiasm for value here to stay? \u201cI think it is because it started before the recession,\u201d noted Claudia Sagan, a San Francisco-based consultant and a former senior real estate executive for Talbots, Williams-Sonoma and Ann Taylor. She cited Target and H&M as retailers that were ahead of the curve by transforming value shopping into a savvy and even stylish cultural choice several years before it was a necessity. Whether as anchors, junior anchors or in-line tenants, it seems clear that value retailers will generate the lion\u2019s share of demand for space for at least the next several years.That growth, however, will have a considerably different tenor than it did before the recession. Like consumers, the retail real estate industry has lessons to learn from the economic pain inflicted during the past two years. Until the upheaval in the financial markets, Wall Street rewarded retailers more for expansion and market share than for sales growth, Sagan noted. That led to the overheated expansion symbolized by some formerly high-flying brands. No retailer symbolizes the change of direction more than Starbucks Corp., which will close 800 stores in the United States as part of a program that will reduce its footprint in the United States by a net 420 outlets during its current fiscal year, which runs through September.Still, some analysts emphasize that retailers are hardly throwing plans for new stores out the window. \u201cIt\u2019s not as \u2018doom and gloom\u2019 as people think. It\u2019s just that their processes are much more thorough, much more analytical,\u201d Sagan said. \u201cThe retailers that are going to thrive are the ones that are taking their time; they\u2019re being analytical.\u201d Perhaps overlooked in Starbucks\u2019 cost-cutting program is that the chain also plans to open 140 new stores by the end of the year. That represents 60 fewer than the company had previously announced, but the program still translates into 140 new leases, as well as paying customers for owners. That may capture the leaner but more realistic outlook that may eventually place retailers and owners alike on more solid footing.<\/p>\n","protected":false},"excerpt":{"rendered":"
After two years that have trimmed the retail field and chastened the remaining players, the most compelling questions concern what retail real estate will look like when it inevitably mounts a comeback. A preview suggests that by early in the next decade, retail real estate will look much different from the pre-recession model.The full implications…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37301],"tags":[],"class_list":["post-1003974208","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\n