LAS VEGAS—One topic was inescapable at this year’s RECon: The ongoing evolution of big box retailers. Junior-anchor tenants aren’t expanding as they were in the past, and many operators of those stores, such as Borders, have shut down, or in the case of Best Buy, are downsizing. GlobeSt.com spoke with director of retail brokerage Matt Hammond and senior associate Ben Terry of Southern California-based Coreland Companies about the future of the big box.
GlobeSt.com: What were some of the themes at RECon this year among tenants and landlords?
Matt Hammond: The evolution of big-box space is still a major part of the discussion. Most are in agreement that the traditional big-box retail concept is obsolete. Aside from your largest retailers such as Walmart and Target, all other concepts have faded or evolved.
Retail has always been an evolving industry so it is natural to see retail concepts fade as new ones are introduced to the market. However, one of the major areas of concern right now is that the new concepts are very limited. Typically we walk away from RECon with numerous new box retailers looking to enter into Southern California, but there aren’t many box retailers sitting on the sidelines ready to enter the market to replace the existing stores.
GlobeSt.com: How are landlords dealing with this uncertainty?
Hammond: Landlords are trying to be very proactive. We’re sitting down with our clients, looking at site plans and preparing a strategy to address potential vacant boxes. It is a bit of a guessing game, but outlining a variety of strategies allows us to get a jump on marketing a space. We look at retailers that have started to downsize across the country, or those that were late to the game when it comes to omni-channel retailing. We look at 40,000-square-foot retailers that might become 20,000 square feet, and 20,000 square feet that might become 10,000 square feet. These are the factors that will affect business down the road.
Ben Terry: Food and discounters. There is a lot of positive energy out there right now among restaurant tenants…all you had to do was walk in the South Hall and visit Jimmy John’s Gourmet Sandwiches or Jersey Mike’s Subs or Chipotle Mexican Grill. There are a lot of opportunities in the market for great QSR concepts right now, and most have aggressive expansion plans for the next five years. Not only is this most evident with the national restaurant tenants, but we are also seeing the impact locally. The strength of the market has helped local restaurants expand, which in turn has benefited A, B and even C centers.
GlobeSt.com: And your thoughts on discounters? Do they remain a viable alternative for big box space?
Terry: This is probably the sixth conference in a row at which discounters continued to dominate the activity. Many viewed discounters as a Band-Aid during the recession, but these bargain chains have grown profitably and have brought the rest of the commercial real estate along with them. Rents are rising and retailers such as 99 Cents Only Stores, Marshalls and Ross Dress for Less are no longer the last alternative. Given their success, they remain a good option for vacant boxes.
GlobeSt.com: What are some of the other alternative uses that were being talked about?
Hammond: Healthcare has played a big role in the absorption of vacant space. A year ago there was still a lot of concern among owners when you introduced a potential medical tenant into a property. However, it is getting more and more accepted by consumers and landlords. Owners are realizing that it is not a detriment to the center when you have a tenant like RadNet, an urgent care facility, which sees 200 patients a day. These are quality tenants that spend a good amount on their own tenant improvements.
We are also seeing certain areas being rezoned to accommodate residential uses. It is a reality of today’s retail market that some areas are just over retailed. For example, there is a retail property in South Los Angeles County, a former Borders and Hollywood Video, that was foreclosed on. It has great visibility and sits adjacent to a popular 400,000-square-foot town center, but has terrible ingress-egress. After talking to numerous retailers without generating any interest, the city saw that retail was not the best use for the site and approved a zoning change for residential.
GlobeSt.com: How does this continued downsizing and evolution of big box retailers affect the grocery sector?
Terry: All discussions remain focused on either specialty retailers or bargain retailers. People want a great deal, or they want a unique offering that cannot be found elsewhere. This is especially evident in the grocery sector. It is very difficult for traditional grocery stores to operate today, especially with such a large footprint and few points of differentiation. Neighborhood shopping centers are now targeting Sprouts Farmers Market, Northgate González Markets and Smart & Final Extra because each attracts a different consumer, sells a unique product, and has proven to be viable even despite local area competition.