Crunkleton’s Retail Team Shares A Recap of ICSC 2018

Recently, two of our brokers traveled to Las Vegas to attend the annual International Council of Shopping Centers (ICSC) conference in Las Vegas. Anusha Alapati and Zac Buckley specialize in retail leasing here at Crunkleton and took the opportunity to share a recap of the event and discuss all major updates affecting the retail leasing industry.

RECon in Las Vegas is the largest commercial real estate conference in the world focusing on deal-making and the discovery of new, exciting concepts. This year, an estimated 37,000 retail specialists and industry leaders met for the annual three-day event to showcase trends in the market. Despite what one may hear in regard to concerns about the uncertainty of retail, the conference was packed with attendees, fresh ideas, and a positive atmosphere. It is clear that the retail real estate industry is going through major changes, many of which will affect the face of retail and the shopping experience for years to come.

Here are a few key takeaways from the event:

Restaurants are Becoming Anchor Tenants

Historically, restaurants were considered an added amenity in shopping centers and were limited in proportion of the property—mainly due to the parking requirements and the inherent issues involving prep and disposal of food. Now, restaurants are often considered the anchor tenants of developments, occupying 20-40 percent of shopping centers compared to 10-15 percent ten years ago.

Landlords now consider restaurants the ideal tenant because they are historically strong traffic drivers to centers, meaning guaranteed regular customer visits. It’s interesting to watch restaurants themselves shift to providing experiential elements: unique aesthetics, Instagram-worthy food, communal seating, and other interactive features that millennials crave.

Experiential Retail is Key

Retailers have to adapt to remain successful and competitive in the e-commerce era. However, customers are still searching for social and experiential elements, which can typically be found in visiting the physical store. Retailers are recreating stores to provide one-of-a-kind experiences, such as classes, events, demonstrations, etc.

The overall mindset is shifting from simply moving a product to developing an experience. It’s clear that today’s customer needs to feel as if the store is adding value beyond simply providing the merchandise. Landlords are also getting into the experiential game by backfilling vacant spaces with entertainment concepts and using vacant land, not for another building, but for a park, playground, putt-putt, etc.

Pop-Ups to Test Concepts

Pop-up locations are gaining popularity in developments due to smaller, local retail brands that are looking to grow. With the rise of local vendors from Etsy, Instagram, and Shopify, more concepts want to experiment with brick-and-mortar but are hesitant to make a large investment. Pop-ups allow these retailers to test out their concept or idea in a brick-and-mortar environment before entering into a longer-term lease. The landlords benefit because pop-up tenants create excitement and something different regularly for the development.

If properly curated, pop-ups can draw more traffic or new traffic to the center, which in turn creates additional traffic for the permanent tenants. In many cases, pop-ups are so pleased with the turnout they decide to open up a brick-and-mortar location.

Online-only Retailers Opening Physical Stores

Although retail has become increasingly digital, most shopping still takes place in stores. Online-only retailers are opening brick-and-mortar stores to interact with their clientele and to enhance the customer experience. For example, Warby Parker and Bonobos, both historically online-only retailers, opened physical stores so customers can actually try on products. This allows them to focus on customer service over inventory management.

Going Local

Lastly, in speaking with landlord and developers from across the country, one thing was clear: the make-up of tenants in their developments are becoming more and more local. Typically called “mom-and-pop” retailers, these local concepts and owners are becoming the backbone of successful shopping centers. Less and less focus is being placed on large, national “credit” tenants as landlords strive to credit a strong tenant mix that appeals to all types of shoppers in their trade area. Local tenants often bring a fresh look, brand, and experience to developments that national retail can’t provide. We believe this trend will continue into the foreseeable future.

For more information on ICSC, be sure to visit the official website here. What changes are you noticing in the retail industry? Let us know in the comments!

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Zac Buckley
VP of Leasing
Crunkleton Commercial Real Estate Group
ZAC@CRUNKLETONASSOCIATES.COM

 

Anusha AlapatiAnusha Alapati
Associate Broker
Crunkleton Commercial Real Estate Group
ANUSHA@CRUNKLETONASSOCIATES.COM

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Trends To Watch In The Hotel Industry: 2018

Whether it’s full-service or budget-friendly, hotels are an important sector in the commercial real estate world.

In its latest 2018 U.S. Market Outlook, CBRE projected an increased demand in hotels. And in the 2018 Emerging Trends in Real Estate Report, it was determined that “U.S. hotel occupancy levels are expected to be approximately 65.6 percent, the highest level of occupancy since 1981.”

But with changing demographics, updates in technology, and competitive hotel brands, it’s important that commercial real estate practitioners, investors, and developers stay on top of major trends affecting the lodging industry.

Increasing Brand Diversification

In recent years, several hotel brands have been introduced to the marketplace. Larger hotel companies are expected to diversify their brand by creating independent properties through soft branding.

Emerging Trends reports, “hotel owners and developers are expected to create campuses featuring two or more brands with distinct products and price segments that share back-of-the-house facilities.”

By creating these distinct brands, they are able to offer entirely different experiences that capture different crowds. One of the campuses may provide more high-end luxury features, while the other site could cater to budget-friendly travelers.

A Shift To Leisure Travel

According to CBRE, leisure travel will outshine business-related travel in the coming year and will become increasingly important in the hotel/lodging sector.

Hotel demand is projected to grow, but this shift to leisure travel means some markets will need to adapt to “fluctuations in international travel.” CBRE reports that the “growth in leisure [travel] demand is particularly explained by shifts in the hotel guest profile and the spending habits of U.S. age cohorts.”

People are craving the experiences that travel can offer. In fact, the 2018 Travel Trend Report by TrekkSoft says that the 30 to 50-year-old crowd (Gen X) is more interested in relaxing getaways, while 65+ (Baby Boomers) are looking for adventure outings and ways to socialize with other travelers.

More Smart Room Features

Hotel and lodging brands that successfully harness the power of technology are at an advantage. All areas of hotel design are adding more technology to provide flexibility for guests, along with offering more personalized services.

For instance, apps that guide guests throughout the experience are becoming the norm. Booking, check-in, service requests, and checkout can all be taken care of by the touch of a button on a hotel-branded app. Texting the concierge is replacing calls to the front desk. And rooms are adding more amenities such as personalized tablets where guests can control lights, temperature, and streaming services like Apple TV and Netflix.

But even with an increase in technology, studies show that hotel guests still crave human interaction and a personal touch. The challenge for hotels will be creating an environment that supports both.

Simpler, Natural Design Elements

U.S. News & World Report has noted a few evolutions in hotel design. Most notably, a trend toward pared down rooms and enhanced common spaces. (Many experts credit millennials for this change.)

Design is trending toward more simple and natural concepts. Trivago recently shared that in addition to larger communal spaces, hotels will feature more “live greenery” and “natural light.” The goal of connecting guests to the natural world is aimed at improving wellbeing and decreasing the stress of travel.

Curious about what other trends are affecting the hotel industry? Read more in the 2018 Emerging Trends in Real Estate report here.

Have you seen other trends in the hotel industry worth noting? Let us know in the comments below!

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Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

haley_squareHALEY CLEMONS
MARKETING COORDINATOR
CRUNKLETON COMMERCIAL REAL ESTATE GROUP
HALEY@CRUNKLETONASSOCIATES.COM

The Trend Report: Emerging 2018 Insights

Each year, we take a look at the Emerging Trends in Real Estate report that’s released by PWC and the Urban Land Institute to see what changes to expect in the commercial real estate industry. The report for 2018 is out, and Crunkleton has a breakdown of the major highlights when it comes to office and retail.

Although these trends are presenting themselves nationwide, it’s important to note that many of the items found in Emerging Trends generally take a longer time to reach smaller markets—on average 5-7 years. This must be considered when examining Huntsville.

So what trends should you be watching in the years to come? Here are just a few:

A Focus On “Generation Z”

It’s true that while Millennials are still on everyone’s mind, the younger Generation Z is beginning to influence the future of office space, retail, and housing.

Generation Z falls between 1995-2001 and totals around 65 million to 75 million people within the United States. As the newest group to enter the workforce, businesses and building owners are carefully looking at the major transformations they could bring to the workplace.

According to Emerging Trends, this generation is likely to show the same initial preferences for urban-based work environments that Millennials did. However, there are some key differences that should be noted.

  • Surveys suggest that potential for growth and stability are the two main factors Generation Z desires when searching for a job.
  • The design of workspaces will need to adapt to accommodate the collaborative space-loving Millennials and the structure-seeking Generation Z. Emerging Trends reports that the new generation is trending toward more structured/personal office space.

While Generation Z is the next hot topic, one can’t forget that the workplace is multigenerational. Baby Boomers are staying in the workforce much longer than expected, and this greatly affects the preferences you’ll see in the modern work environment.

When it comes to retail, Generation Z is seeking more omni-channel experiences. Essentially, they want to be reached on a number of channels that make purchasing convenient and engaging.

Omni-Channel Retail Becoming The Norm

If you aren’t familiar with the concept of “omni-channel retail” here’s a quick breakdown of how it works. Retailers are reaching potential and current customers on several channels at once—online, mobile, email, apps, social media, and physical stores. It makes it increasingly easy to purchase an item on whatever channel suits the consumer.

Emerging Trends states, “even the largest online retailers are now acquiring brick-and-mortar locations and moving away from pure-play Internet distribution.” This allows retailers to reach customers from every angle and make their brand an experience.

There’s an increasing demand for the “eat, play, live” model that makes a shopping experience double as a social exchange. This means developers are called to become increasingly creative with how they implement new shopping destinations in the market.

An Evolving Office Landscape

Office job growth is strong and expanding 2.2 percent on average compared to 1.6 percent total job growth. Employers are competing for talent and are creating attractive, flexible office spaces to help draw in new employees.

Emerging Trends reports a demand for close-in suburb offices that provide central business district amenities. Millennials particularly are looking for the best of both worlds. Offices in suburban areas with reliable public transportation, walkability, high-quality real estate, and live/work amenities are important. Examples of these “new suburb” areas include Brooklyn in New York City and Belleview in Seattle.

The lines between working and playing are continually blurring, and many offices are attracting tenants with “transformational office amenities” like large public gathering spaces, food options, high-end fitness facilities, and rooftop spaces—just to name a few. This is further expanding to include daycare facilities, rest areas, and game rooms.

However, office owners are constantly working to develop spaces that not only offer open-space environments, but also plenty of flexibility for private spaces that reduce noise and increase focus.

And finally, technology is affecting the office real estate landscape. Spaces are evolving to become more energy efficient with conveniences like motion-activated lights and the most advanced audio/video setups that the market has to offer.

Deconstructing The Department Store Model

It has been decades in the making, but the deconstruction of the full-line department store business model is in its final phase. In the words of Emerging Trends, “department stores are closing operations at an increasing pace, threatening all but the best malls with extinction.” The report states that department store sales once totaled in the hundred billions of dollars annually, but only comes to around $70 billion today.

This means malls have to adapt in order to attract consumers—by adding more unique retailers and local goods. And most large department stores have decreased their product offerings over time and now only provide three primary categories of goods: apparel, housewares, and cosmetics/fragrances.

Other factors are affecting the retail real estate industry, as well. Some of them include changing consumer demographics and preferences. Baby Boomers are still the largest single U.S. consumer group but are entering a new stage of life where they will consume less, shed assets, and spend higher amounts on entertainment, dining out, and travel. Millennials are appearing to follow suit by spending less on apparel and housewares and more on entertainment and dining out. This is all the more reason to create retail centers that add a “social dimension.”

Old-fashioned human interaction cannot be computer-generated. And the outlook looks great for retailers who are able to harness the power of community and offer more than an exchange of cash for goods.

All information, opinions, and predictions presented in this article come from the Emerging Trends in Real Estate Report 2018.

 Interested in reading the full report? CLICK HERE to download the document.

“Now in its 39th year, Emerging Trends in Real Estate is one of the oldest, most highly regarded annual industry outlook for the real estate and land use industry. The market outlooks included in each edition are based on an extensive survey, multiple interviews, and individual market focus groups. Readers’ interest in all markets continues to increase, so the 2018 edition provides a regionally based look at all 78 markets included in this year’s survey. Throughout the report, we’ll explore a variety of trends we’re seeing in the industry, as well as analyze the prospects for 78 metropolitan markets for the coming year.”

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Make sure you’re staying on top of the latest trends, newest developments and hottest new stores in Huntsville by subscribing to our weekly blog updates!

haley_squareHALEY CLEMONS
MARKETING COORDINATOR
CRUNKLETON COMMERCIAL REAL ESTATE GROUP
HALEY@CRUNKLETONASSOCIATES.COM

Trend Report For 2018: A Pivotal Time for Brick and Mortar Retail

Possibly not since the first enclosed mall opened in 1956 in Edina, Minnesota, has brick and mortar retail experienced such a pivotal point in its history. Most would attribute the changing retail environment to the effects of e-commerce and the Goliath that is Amazon; however, we believe there are more powerful factors at work.

In-store brick and mortar retail sales accounted for more than 89% of total retail sales in 2016, and early indications seem to point to 2017 being the best holiday shopping season in 4 years. So, if people are still shopping at brick and mortar stores, why do we hear the term “retail apocalypse” every time we turn on CNBC or pick up a Wall Street Journal?

The End Of The Department Store Era—Not Brick And Mortar

What we are seeing is not the demise of brick and mortar retail, but more the end of the department store era. Department-store-anchored malls that sold everything from apparel and electronics to furniture and home appliances dominated the 60’s, 70’s, and 80’s. But specialized big-box retailers have steadily eroded the department store model over the last three decades.

Eventually, we were left with malls anchored by department stores that focused on just a few categories centered on apparel. Does this mean that we will soon see the end of department stores and enclosed malls? Yes and no.

We will continue to see enclosed malls struggle to compete with convenience/grocery-anchored centers, experience-based shopping destinations, open-air lifestyle centers like Bridge Street Town Centre, and local specialty destinations such as The Garage at Clinton Row. Many malls will be able to adapt and survive with the addition of entertainment venues, hotels, and even office space. Others will simply disappear from the landscape to be replaced by a more modern retail and entertainment experience as we are seeing take place at the site of the old Madison Square Mall.

As far as the old department store is concerned, we are already seeing the same type of adaption into a more mixed offering of services and experiences. Many department stores are starting to reduce the size of the sales floor to make room for cafés, salons, pop-up shops, and even fitness concepts. Not all department stores will survive, but the ones that do will be more focused on the high-end specialty categories and customer experience. Instead of existing for exclusively for retail sales, they will provide a total experience and numerous services in one convenient location.

What Does The Future Look Like?

What can consumers expect the retail environment to look like in the future? Currently, the trend is what is called omni-channel retail. This is a combination of brick and mortar stores with online and mobile sales. As evidenced by Amazon’s acquisition of Whole Foods, e-commerce retailers are getting into the physical storefront game. It appears they understand the value of physical storefronts and their impact on the bottom-line. Sure, online shopping is convenient, but does it result in sales?

Research has shown that over 40% of items purchased online are returned. Furthermore, consumers make a purchase at a rate of 20% of the time when they walk into an actual store. That rate drops to 3% when visiting a website. The successful retailer of the future will be able to combine online, mobile/social media, and physical locations to create a positive experience for the customer.

One issue that is flying under the radar is the new tax reform bill and its impact on retailers. A reduction in the corporate tax rate could have a significant influence on the ability of brick and mortar retailers to compete with e-commerce retailers. With the reduction of the corporate tax rate, the savings experienced by the retailers can be used for an investment into omni-channel/mobile platforms, upgrading stores, or simply lowering prices to compete with e-commerce.

A Theme Of Adaptation

In conclusion, we continue to believe that the future is bright for both retailers and landlords. Once again, the theme continues to be adaptation. Traditional retailers are building their online presence and e-commerce retailers are getting into the bricks and mortar game. This environment creates opportunities for landlords that have the vision to meet the changing demands of consumers and the needs of the omni-channel retailer. It’s certainly an interesting time in retail, but one that can bring exciting changes to the benefit of everyone.

 Have questions about the changing retail market? Wondering how you can adapt in 2018? You can contact Zac at zac@crunkletonassociates.com or by calling 256-536-8809.

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Originally from Tennessee, Zac studied business management at Samford University. After moving to Huntsville in 2001, Zac started out his career in banking, wealth management, and financial planning. In 2010 he joined Crunkleton and has since become the VP of Leasing for the commercial real estate group where he focuses on retail leasing and development.

Zac Buckley
VP of Leasing
Crunkleton Commercial Real Estate Group
ZAC@CRUNKLETONASSOCIATES.COM