Anticipation grows as real estate’s most resilient sector enters critical shopping season
For the past couple years, the retail sector has been remarkably resilient, standing out from other asset classes among the ever-shifting commercial real estate landscape. As we approach the critical holiday shopping season, that trend is sure to be tested.
According to a new forecast from EY, shoppers are likely to be more intentional in their purchases, seeking out deals and focusing on essentials. This tempered optimism follows a strong run that was fueled by pent-up demand accrued during the COVID-19 pandemic. Still, overall retail sales are projected to increase for the year by about 3%, compared to 4% last year and 5.2% in 2022.
Another wrinkle is this year’s shortened holiday calendar. A relatively late Thanksgiving (Nov. 28) leaves retailers with just 27 shopping days between Thanksgiving and Christmas — five fewer than in 2023. Although this compressed timeframe could be a challenge for retail real estate, a recent survey found that consumer spending is not likely to drop as a result. Even the trend towards e-commerce is making room for brick-and-mortar retail through the increasingly popular buy-online-pickup-in-store (BOPIS) option, which Bain & Company predicts will help support a modest 0.5% growth in in-store sales during the holidays.
Felt Impact
While numbers and projections are great, the commercial real estate industry is concerned with long-term value and specific opportunities. That’s been the focus at conferences this year held by the International Council of Shopping Centers (ICSC). The group’s events this year have been marked by optimism and, more importantly, deal-making. The closing of new tenant leases and exploration of new designs that bolster revenue were on full display at ICSC’s flagship conference in Las Vegas in May, and more recently at its Q4 kick-off event in Palm Springs. The synergy is poised to continue through the ICSC New York conference this December.
What we’re seeing now in retail real estate is a resilient – if not bullish – attitude that ranges from owner-operators to designers and planners. For instance, earlier this year our client Nadel Architecture + Planning was in New Orleans hosting a roundtable for ICSC’s Open Air Center conference with many leading executives from all over the retail and design industries. On Day One of this conference, Macy’s made its announcement that the iconic American brand will be closing 150 more stores, including 50 by the end of 2024. Such news used to send shock waves of fear through the industry, but not this time.
Instead of worries of doom and gloom, upon hearing the news the room in New Orleans came alive with optimism and creativity, as retailers began thinking up all sorts of exciting ways these newly available spaces could be reconfigured to enhance the retail experience. Classically designed department stores could be transformed into community attractions, hospitality destinations, or dining extravaganzas. The possibilities are endless, and the timing is perfect because foot traffic and consumer spending have both been on an upswing.
Combined with easing financial policies, the retail real estate market is experiencing multiple positive catalysts that will take us into the new year. So, while in-store sales could pop by 0.5%, the “felt impact” could be much greater, leading to an acceleration in deal-making and investment in commercial real estate.
