Southern California Commercial Leasing + Investment Sales Brokerage
What The COVID-19 Pandemic Taught Us About The Value of Strip Centers

By Geoff Grossman, CBM Retail Specialist

The retail industry’s demise has been predicted before. More than once, in fact…

Catalog Sales

First, it was catalogs. They were predicted to wipe out general stores. And while catalogs were a Godsend for folks in rural locales, retail businesses proliferated alongside the growth of urban centers.

Department Stores

Then it was department stores. They were predicted to squash all competition. Squeezing out small businesses and yielding monolithic monopolies. Nowadays, however, most department stores have either folded or are struggling mightily to stay afloat as the contend dire financial straits.

The Internet

And then it was the internet. eCommerce was going to cut out the middle, reducing logistical costs, and passing the savings along to consumers. Meanwhile, just about every major “eRetailer” has already launched physical retail locations or has plans to do so in the works.

Retail Evolves And Persists

Yet, despite the many ominous predictions of its demise, retail persists.

Sure, most retailers peddling merchandise – soft goods and hard goods – that can be sold easily and more inexpensively online have gone away. Or seriously changed their business models.

But rather than squelch retail, this evolution in consumer habits incited a wave of “Rightsizing” and a shift toward the “retail service economy.”

The Ascendance of Strip Center Real Estate

This rightsizing and service-oriented shift has made strip centers one of the most valuable segments of retail real estate.

Strip centers are home to businesses countless consumers patronize every day. Business like…

  • Hair + nail salons
  • Barbershops
  • Message providers
  • Cellphone stores
  • Insurance and tax prep offices
  • Dental and urgent care clinics
  • Dispensaries
  • Tattoo shops
  • Vape shops
  • Tobacco and cigar shops
  • Coffee cafes and bakers
  • And all manner of quick-serve and takeout restaurants – from pizza and tacos to Thai and sushi and everything in between

And these businesses have flourished in strip center retail. Earning a tidy living from the tenants who operate them. Not to mention a steady income for the landlords and property investors who own the real estate tenant businesses occupy.

Retail’s Latest Challenge: The COVID-19 Pandemic

Sadly, the COVID-19 pandemic is seriously threatening this mutually beneficial arrangement.

Many businesses forced closed by order of state and local governments amid the coronavirus crisis may never return.

And many of those that do reopen are facing an uphill battle… Fewer customers, increased debt, a looming recession, and a horizon fraught with general economic uncertainty.

But despite the unfortunate economic fallout, the COVID-19 pandemic did teach us an invaluable lesson: People need physical retail. And moreover, they WANT it!

Flourishing in the Face of Infection Fears

The businesses that have remained open – grocery stores, pharmacies, mini-marts and liquor stores, dispensaries, hardware and home improvement outlets – have seen lines wrap around the block.

Restaurants and quick-serve food tenants with the capacity to provide take-out and delivery service are achieving exceptional sale volume. And in some case, the numbers are better than many operators have ever seen.

In addition, the public has clamored for reopening of hair + nail salons, massage parlors, vape and tobacco shops, and tattoo shops, among many others. Demonstrating REAL demand for such business operations.

A demand born in part from a need for connection. Because while we can perform many of the services these businesses offer ourselves, and find the products they sell elsewhere, we prefer to acquire them in our communities.

Humans Are Social Animals – We NEED The Public Square

We crave connection and contact with other humans. We long for that in-person interaction that reminds us of and validates our humanity.

This is why the idea of the “Public Square” has persisted for so long and why the concept is so vital to our culture.

And retail is a part of that Public Square. Of course, retail fulfills essential functions. We buy the food, household goods, and pharmacy items we need. And we get haircuts, manicures, and messages – things we can’t (easily) manage ourselves.

But we also connect and interact with other humans in the course of satisfying these essential functions.

And these connections are part of the texture and tone the brings rich, fulness to the tapestry of our lives.

Which is why, when we’re able to do so, we go out to eat + drink, enjoying meals and spirits, soaking up the stimulation from the color of life that surrounds us.

And retail strip centers provide ALL of these functions and features. Which in turn makes these outlets essentials elements of our lives.

Because while you can order everything delivered, drop a bowl on your head and cut your own hair, paint your own nails – you can’t order up a rich, full life sequestered inside the four walls of your home.

What the Future May Hold For Strip Centers: Diminishing the Stigma of “Shopping Center” Retail

As already noted, retail downsizing has been in full swing for quite some time now. But the current crisis appears poised to push the trend even further.

Anxiety over mingling among large groups will persist until a credible vaccine is created and widely disseminated. And this feat could take several years.

In the meantime, these fears will continue to push consumers away from larger format locations. As an alternative, consumers will seek smaller retail outlets. Which, of course, is exactly the sort of shopping experience strip centers provide.

And this new normal will further knock down the (already diminishing) stigma that has tainted “mini-malls.” This in turn makes strip center properties significantly more appealing to both tenants and their consumers.

In Crisis, There is Opportunity…

Another aspect of the COVID-19 pandemic is the growth avenue opening up for large scale national and regional restaurant chains.

Many of the businesses likely to disappear in the economic fallout from the coronavirus crisis are small, independent, “mom + pop” restaurants.

Such operations are usually one-off locations owned and operated by individuals who draw their sole income from these enterprises. Outright closing their doors or significantly curtailing income for several months is bound to manifest a financial disaster. A calamity from which most of these operators will NEVER recover.

But many of these tenants happen to occupy prime real estate, often at highly desirable Main + Main locations. The sort of sites national and regional restaurant chains salivate over.

And with a wave of independent restaurant tenants ostensibly on the way out, a retinue of major restaurant chains are poised to step and claim the spoils of the current crisis.

Strip Center Real Estate Has Bright Future, Despite the Cloudy Horizon

The collective takeaway here is… Retail has been down, many times at this point, but it’s still not out.

And this is true irrespective of the many challenges ahead. Of course, there are practical concerns, speaking in terms of changing consumer habits. As well as financial insecurity, manifest in the anxiety over a possibly debilitating recession.

Retail strip centers, however, are uniquely poised to not only endure the coming fallout – but thrive!

Because as the COVID-19 pandemic lockdown has demonstrated, no one wants to “order everything online,” not everything can be done online (who’s ready for a haircut?), and humans fundamentally need the “town square” experience.

And your neighborhood retail strip center checks all of these boxes!

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Geoff Grossman is a Retail Specialist handling retail property sales, leasing, and property management across Southern California. For additional information, contact Mr. Grossman directly at: geoff@cbm1.com

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