From small-scale refreshes of neighborhood shopping centers to massive conversions of regional malls, retail redevelopment has become a budding business as seismic forces like e-commerce and COVID-19 have fundamentally altered the ways in which Americans shop, dine and seek entertainment. Yet empirical and anecdotal evidence shows that people still love to frequent brick-and-mortar stores, restaurants and entertainment centers.
According to data from Transwestern, at the end of the third quarter, Dallas-Fort Worth, Houston, Austin and San Antonio all had marketwide retail vacancy rates under 6 percent. Year-over-year vacancy contracted by anywhere from 80 to 130 basis points across the four major markets, all of which also experienced positive net absorption in the third quarter.
While these Texas-specific numbers reflect a steady, sustained rebound for brick-and-mortar retail in the post COVID-era, preliminary data on holiday shopping indicates that e-commerce’s foothold on the market is getting
stronger.
According to Adobe Analytics, online sales during Black Friday topped $9.1 billion, a 2.3 percent increase over 2021. While that number should be judged against the fact that this year, the public health risk of shopping in physical stores was substantially reduced, it also represents a 21.7 percent increase over pre-pandemic online sales of $7.4 billion on Black Friday in 2019.
In addition, Adobe Analytics reported that Cyber Monday 2022 set a U.S. record for single-day e-commerce sales with approximately $11.3 billion in online transactions. That figure represents a 5.8 percent increase over Cyber Monday totals for 2021 and a whopping 20.2 percent increase over 2019.
Despite these impressive numbers from the e-commerce corner, Seeking Alpha reported that certain brick-and-mortar retailers in the discount apparel, electronics and cosmetics industries all saw increased levels of foot traffic relative to both 2021 and 2019. In addition, sources indicate that anecdotal evidence of healthy traffic levels, both before and during the holiday season, has reinforced the notion that brick-and-mortar and online shopping can effectively coexist.
Weldon Simons, COO at Weitzman, which handles retail rehabilitation and redevelopment projects across the state, says that brick-and-mortar owners have been very encouraged by rebounding traffic levels in the post-COVID era. “The traffic of late has proved that brick-and-mortar retail has survived and is here to stay,” he says. “Seeing that rebounded traffic makes owners want to make that capital investment in their properties.”
The collision of these two social phenomena has been purely Darwinian, resulting in the creation of an evolutionary framework wherein the weakest centers and malls are weeded out in favor of true destinations that effectively check multiple boxes. That could entail combining multiple commercial sectors in a traditional mixed-use fashion or simply adding elements that encourage more browsing, cross-shopping and onsite leisure time.
Whatever the case, retail redevelopment has become an undeniably philosophical business. Concepts such as “vibe” and “identity” resonate the operations of properties that previously served as little more than places to just run errands, grab a bite or enjoy activities with family and friends. Intangibles like pizzazz, street smarts, tech savviness and human intuition lie at the core of most successful redevelopment endeavors.
This paradigm shift in how people consume retail, restaurant and entertainment uses necessitates more thought provocation and creativity from owners in branding their physical spaces.
Sure, the properties with the most desirable locations — and their tenants — will always have built-in advantages in terms of density and demographics. But for most other properties, these sweeping changes across the brick-and-mortar landscape have catalyzed moves to take hard looks at properties and find ways — whether overt or subtle — to enhance them.
Preliminary Analysis
Simply acknowledging the potential need to revamp or reposition a property raises a slew of questions for owners. How deep a dive is necessary given the age and condition of the property? Where are the opportunities to add value? What types of lifestyle elements can be seamlessly integrated into the site’s existing infrastructure? How should the tenant mix be adjusted to mesh with the physical upgrades? What are the best ways to activate and brand the property?
These are tough questions. Tougher still: While there’s no singular right answer to any of these queries, there are a lot of potentially wrong answers to them — prospective courses of action whose success or failure can only be measured over time.
Given these pitfalls, as well as the ever-escalating costs of executing a refresh or redevelopment, it’s no wonder some owners delay these decisions as long as possible. In addition, every owner has different financial limitations and capital resources by which to turn vision into reality.
Even so, owners never know when today’s fluid and fickle market could turn on them. For that reason, it’s never too early to start thinking about repositioning options and conducting some basic market analysis.
Terry Montesi, CEO of Fort Worth-based Trademark Property Co., says that the rise of omnichannel distribution in the retail world has been a game-changer in terms of evaluating the potential for redevelopment.
“When we look at a retail site, we consider the extent to which it is strategic for retailers from an omnichannel delivery standpoint,” he says. “For example, does the space lend itself to buying online and doing curbside pickup? Most legacy retailers will likely need fewer stores in the future than they have today, and part of redevelopment is rightsizing or re-envisioning the existing retail. So that’s a new filter that we’ve added to our analysis.”
But on a broader level — and as is usually the case in real estate — every property comes with a different story and profile, and therefore typically has a unique impetus behind the decision to revamp or redevelop it.
“While there’s usually not a seminal moment or obvious catalyst, neither is the decision to pull the trigger on a redevelopment done on a whim, mainly because there’s no ‘one-size-fits-all’ approach to these projects,” says Simons. “It’s all about conducting market research to determine whether or not a redevelopment makes sense.”
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