Over the last ten years, numerous profound shifts in retail shopping habits have been attributed to the significant rise of e-commerce. Because of these shifts, retailers are now hyper-fixated on buying habits and their bottom line. Now, amid a looming recession, retail investors wonder when the best time is to re-invest in shopping centers.
Retail is Here to Stay
Service-oriented strip mall retailers in densely populated urban and suburban neighborhoods performed well in 2020 and 2021, despite widespread misinformation about the pandemic’s impact on shopping centers. In reality, these properties have consistently performed well regardless of market conditions. The state of the retail market is healthy and optimistic. Shopping centers are an opportunity to reimagine and reuse real estate and are considered a much more entrepreneurial investment. Outlet centers have been performing exceptionally well over the last 12 months, making them desirable investments.
The best thing about retail is its dichotomy of product and optionality. The profitability of investing in shopping centers, according to First National, is highly dependent on the price paid for the property, the efficiency of management, and the characteristics of the center itself. Depending on these variables, shopping center investors can expect an annual return of five to twenty percent. Some benefits of investment include reliable income, favorable tax treatment, simplicity, and lower levels of risk when high-quality tenants are chosen.
Tips and Tricks for Investing in Shopping Centers
Recent market data has shown that now is a great time to re-invest in shopping centers. There is a new emerging trend in retail mall space that has CRE investors excited about the future potential. People are ready to get out, see friends, and see new products and fashions in malls where they can enjoy a great meal, shop at their favorite stores, and get back out in public. However, investors need to understand that owning a shopping center takes tremendous effort, research, and proactive property management. An investment in a shopping center can be highly profitable if done correctly. For example, if the anchor is a grocery anchor, it would be wise to update the property to have drive-up capabilities, implement EV, or add experience-based tenants to the roster.
Retail properties are attractive investments and are the single largest investment category in the United States. When developing retail properties, most real estate developers focus on attracting the most robust anchor tenant possible to become the building’s first tenant. Anchor tenants are viewed as high-class tenants; this name recognition is an attractive trait to potential customers or tenants. Investors considering an investment in a shopping center should always conduct due diligence to ensure that the deal’s risk profile aligns with their investment objectives. An anchor tenant in a retail complex such as a strip mall could be Whole Foods, Target, or Wal-Mart. These are large, well-known stores that have a steady stream of customers. Food drive-thrus are another anchor tenant guaranteeing traffic to the complex. In-N-Out Burger, for example, is a significant anchor tenant on the West Coast.
How to Upgrade a Shopping Center
People prefer to shop in places that appear inviting and have an appealing tenant mix of quality stores and solid dining options. As a result, maintaining the property’s storefront appearance from the street is critical. When customers feel welcomed, they will stay longer and hopefully spend more money. A shopping center’s brand can be revitalized with a new logo, style, and color palette. It is also critical to update online properties, including the website and social media. If the shopping center is popular, the rebranding may attract media attention. More upscale tenants may be attracted by a more elegant, modern style with the language used by higher-end brands.
Renovation should be a top priority when a shopping center is losing profits. A significant cosmetic facelift is a critical factor in any form of renovation. Every surface should appear or feel brand new, and it is beneficial to rearrange the actual store configuration. Property managers should carefully plan retail shopping center renovations for their clients and incorporate those plans into the property’s business plan. The business plan should be updated yearly based on tenant placement, income growth, and property performance.
There are several ways to increase the number of customers that decide to go to a particular shopping center. Property managers can create an attractive incentive to bring in more customers by turning the center into an entertainment hub or holding inclusive community gatherings. Having Wi-Fi throughout the shopping center and building cafes will encourage a quiet place for visitors of the ever-expanding work-from-home workforce. Center traffic can also be significantly increased by renting out vacant spaces to nontraditional types of tenants who provide entertainment rather than retail shopping, such as laser tag, putt-putt, indoor skating rinks, or fitness centers.
Despite the pandemic’s negative impact on many segments of the commercial real estate industry, shopping centers remain a promising asset class. It’s advised that shopping center owners of a strip mall or similar property concentrate their search in densely populated urban or suburban areas since it is an excellent investment climate. Suburban areas experienced a noticeable pandemic population boom. Suburban cities in the West and South experienced explosive growth, attributed to the area’s prime destination for pandemic movers. In short, shopping centers are a reliable and stable investment that can provide attractive returns.
