As COVID-19 shapes our “new normal,” it presents both challenges and opportunities for tenants and landlords in commercial real estate. As we navigate this redefined landscape along with you, we’re sharing insight on the outlook for manufacturing space, office space, shopping centers and other commercial properties. By understanding the forces at work and at play, keeping an open mind, and focusing efforts on growth sectors, commercial real estate can continue to thrive. This series of articles explores issues for tenants and landlords in the three asset classes – industrial, office and retail – that Flaum Management Company Inc., brokers.
Many retail spaces have further migrated online during the COVID-19 pandemic, but will their re-opening see a rush of shoppers, or a trickle? Will customers linger on errands, or make purposeful trips for specific purchases?
The impact of COVID-19 has accelerated several trends that have shaped the retail landscape in recent years. Already contending with pressure, the retailers deemed non-essential by New York State have faced obstacles this spring. (Blurred lines and sometimes arbitrary distinctions between essential and non-essential big box stores can be a source of frustration, too.) Even iconic companies are on the struggling.
Historically, the United States has maintained more retail per square foot than any other country in the world. With the reset generated by COVID-19 closings and re-openings, we believe retail can “right-size” itself from the perils of overbuilding, contracting in scope to deploy resources and serve customers more efficiently. This re-alignment with the market will create both challenges and opportunities for tenants and landlords. For example, they can pursue a re-imagining and redevelopment of traditional retail properties into mixed-use properties, perhaps with medical or residential space. Highlighting walk-ability, “multi-family” appeal and a sense of community are strategies that will pay dividends.
We predict some mild lingering effects of COVID, as every shopper operates under different levels of comfort. The good news is that shoppers, especially older populations who are not digital natives, appear eager to return to stores and resume lifelong habits of brick-and-mortar engagement. The sense of community found at a store – and the palpable joy of “retail therapy” — is ripe for revival. Those who do venture into stores may want to get in and out quickly to minimize the risk of exposure to COVID-19. But the bright side of lighter foot traffic and browsing may be increased sales for each trip, as shoppers consolidate visits. Another silver lining: the aftershocks of the COVID-19 crisis offer a chance for landlords and retailers to bind together, strengthen ties, and overcome challenges.
From a development perspective, landlords and tenants may consider investing in or preserving innovations that are poised to enhance the retail landscape down the road. For example, the new concept of curbside pick-up has been well-received, offering convenience and peace of mind. This accommodation may be worth folding into business as usual, even after social distancing has ceased. Tenants and landlords should also pursue the “hybrid model” of digital technology melded with the physical retail experience – for example, through Bluetooth or QR code scanners that supports a touch-free shopping experience.
By right-sizing development, welcoming shoppers back with new “best practices” and building a sense of community, retail tenants and landlords can proceed with confidence.
By R. Scott Burdett