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Not long ago, there was fear that “brick and mortar” retail centers were a thing of the past and that all shopping was going to be done via Amazon. This feeling might have even been amplified during the COVID lockdown when we all spent more time on line, buying items with great pricing and efficiency of front door delivery. The retailers were/are pushing for same day drone delivery. This notion of a society of immediate gratification has not subsided, but retailers are revitalizing and the winners are emerging.
AMAZON- Proof Shopping Centers
The retail investment tag line was to buy an “Amazon- Proof” center. The concept was having a retail center that was unique in a tenant mix that was sheltered from Amazon’s delivery platform. What can you NOT get from Amazon ?- nail and hair salons, gyms (however Pelton tried to keep us away from the gym), a fresh hot meal via your favorite restaurant (without having to do dishes), a doctor….So why the renewed interest in retail real estate as an investment sector?
1) Consumers are social animals – the malls of my childhood were less about spending money and more about the social experience of seeing and being seen. The dollars spent were probably secondary to getting out and seeing the world – people, new fashions and experiences. This hasn’t changed, however online retailers have given super busy people and introverts a place to go now.
2) Consumer Spending - our society runs on our spending. – GDP (gross domestic product- the pulse of the economy) is dominated by consumer spending. Give an extra dollar to the US citizens (rich or poor), and 95% of the time it will be spent. This assumes 5% savings for the population, which may be old school. It’s instinctive – spending money makes us feel good.
3) Capital Rotation – the institutional investor world (think state teacher retirement funds) will always allocate a percentage of their portfolios (billions) to investment real estate on an annual basis. When there is a shift in the underlying health of the sector, they reallocate to other sectors. Currently, office is out of favor (will workers ever return to the office in the same manner?); so, the billions allocated a year have to be reprioritized….investments this year are industrial, apartments, self-storage and retail.
NOT ALL RETAIL IS THE SAME
There are sectors of retail that are still suffering for identity and are in process of being revamped/reinvented. Malls certainly come to mind. When was the last time you went to a mall?. What used to be a central location to efficiently find what you need and enjoy an experience has become a ghost town…for many reasons. The best located; high end malls will be fine; however, we have seen some suburban malls convert to different uses. A well- known mall in South Atlanta converted to a data center. Northlake Mall in NE Atlanta metro has been leased to Emory University for office purposes. Even the healthier malls are reclaiming some of the shops to demolish and repurpose for hotel and residential uses.
The grocery- anchored center is considered the healthiest of the retail investments. Why? – everyone needs to go to the grocery store. A well- known fact that many don’t understand…the grocery store is the largest tenant but pays the lowest rent. It is a “lost leader” that draws shoppers to the center. The owners makes their money on all the other tenants that hungrily await the tired shoppers who wants a cup of coffee or a pedicure after shopping. These tenants pay higher rents. There will always be a place for the grocery- anchored retail center.
NEIGHBORHOOD RETAIL CENTERS
All of us have that “go to center” that we all frequent. It has our favorite yoga studio, the best Mexican food in town or the late-night ice cream store that we run to in secret. These are also Amazon- proof, and they're one of our TriStar’s favorite investments. The center below has performed well. The tenants? Butcher shop, dentist, restaurants (best pizza and Mexican); a fitness center. It benefits from one of the highest income neighborhoods in the entire state and the quaintness of a suburban/urban thesis (dense, walkable neighborhoods in the suburban towns) that we originated years ago.
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