Vibrant Retail Pockets Exist Everywhere

By Globe St. | February 26, 2018

The “demise” of brick and mortar retail, pop-up shops, new technologies, decreasing sales, increasing sales, destination retail—opinions on the future of retail are many and varied, causing a pause among traditional investors. That is according to a panel at the recent MBA’s CREF/Multifamily Housing Convention and Expo 2018. “As ecommerce continues to grow, the risks and opportunities for lenders remain difficult to forecast,” panelists said.

In the brick and mortar, e-commerce, demographics and technology session, panelists took time for a reset and provide their perspectives on retail real estate and the components necessary for success in an e-commerce environment. Victor Calanog, chief economist and SVP of REIS, said that the big boogie man in the room is how online sales are affecting brick and mortar. But he said the answer is that the number is really only 9%, which he says is “surprisingly low.”

But that number, he says, includes things like gasoline and car sales, and if you strip those out, the number is closer to 30%. “Sure, there is a lot of stress on brick and mortar, but those scary headlines don’t capture the full picture.”

Calanog explained that it is easy to really highlight stories of store closing, but there is a lot happening out there that don’t highlight that the action might just be shifting somewhere else. “What’s more important is to look at which brick and mortar are doing well and why.”

Ryan G. McCullough, senior real estate consultant at CoStar Portfolio Strategy, says that while there is some concern from retailer productivity, ultimately when we look at what public retailers are reporting today at in store sales, they are 19% less than they have done over a long term average. But what does that mean for the market, he asked? “It means closures in some cases, but it is for the worst performing stores.”

In some cases, he explained, e-commerce is complimentary to brick-and-mortar. “If we didn’t have online sales, we would have about 300 million square feet more space occupied for retailers. The question then is, if e-commerce is hurting some stores, but it is benefiting others, how can we tell the difference?”

He pointed out that vibrant retail pockets exist everywhere. “When you look at the assets you are lending on, you have to think about all that. Tenants also plan an important role in the success of a center long term and location quality is a strong predictor of loan performance.”