By Stacey Berthon, Senior Vice President
Hoar has a particularly long and proud history in retail construction that goes back decades, with over 125 million square feet of retail and mixed use in our portfolio.
We were at the forefront of enclosed mall development with Eastwood Mall, which opened its doors 55 years ago, and we were still a leader in retail construction in the 1990s when mixed use and lifestyle centers first began to emerge, with projects like Aspen Grove in Denver and Downtown at the Gardens in Palm Beach Gardens, Florida. Today, we’re seeing yet another series of trends take hold in retail development. Projects like Avalon in Alpharetta, Georgia and Liberty Center, just north of Cincinnati, are dominating the new type of developments we are most often building now.
Enclosed malls are no longer the dominant cornerstone of retail real estate they once were. Over the last 10 years only a handful of them have been built; in fact, over 400 malls have closed or been repurposed in the last decade. Many malls still dominate their market, but increasingly shoppers are looking for alternatives. Our mall clients realize this, and most are at least examining ways to improve their customer experience. Many enclosed malls, like La Palmera in Corpus Christi, Texas and Lynnhaven Mall in Virginia Beach have undergone significant renovations to incorporate characteristics of lifestyle or open-air developments to rebrand and refresh their appeal. In one extreme example, we tore down the old Coliseum Mall in Hampton, Virginia and replaced it with the open-air Peninsula Town Center.
Another key trend influencing retail real estate strategies is the rise of e-commerce. While predictions of the death of brick and mortar have been widely overblown, the impact of Internet shopping on retail can’t be denied. The Robin Report shows the annual growth rate of ecommerce is slowing (from 30 percent in 2004 to roughly 16 percent in 2014) and is projected to be less than 10 percent in 2018, but the total percentage of shopping conducted online is still increasing, reaching about 9% in 2014 and 11% in 2018.
What’s behind these statistics? The short answer is, Generation Y. These so-called millennials, 18-to-35 year olds, make up some 25% of the U.S. population and by 2020 will account for approximately $1.4 trillion in retail spend. They are a force to be reckoned with, and they simply aren’t satisfied with the typical offerings of the traditional enclosed mall.
Millennials expect their retail spaces to be pedestrian-friendly, to offer up some density and have an urban feel, to convey a sense of place that reflects local community characteristics, and – most importantly – to offer opportunities for unique experiences that can’t be found online. Furthermore, 68% of Gen Y shoppers expect an efficient, seamless experience across all shopping channels, requiring an unprecedented blend of the physical and the digital. So what does this mean for today’s retail developer? Hoar has built some of the largest, highest profile, and most successful retail developments in the country in recent years, and here’s what we see:
• Rest areas that allow patrons to take a break from shopping without leaving the center. People want to check their emails and update their social media as well as meet friends, but they still want to shop and dine later. These public spaces increasingly feature a variety of amenities, like Wi-Fi connectivity and charging stations, fire pits, concierge services, attractive hardscaping, and comfortable seating. Some developments even offer coworking areas to set up a mobile office, presenting themselves as viable alternatives to hanging out at the local Starbucks.
• A sense of place that reflects the character of the surrounding community. Generic properties filled with chain restaurants no longer do well. Adapting experiences, as well as design and aesthetics, to local tastes is simply a cost of doing business in the retail world these days. Many of the most successful retail developers think of their properties more like hospitality than straight retail, and focus on offering unique experiences local shoppers can’t find anywhere else. Also, Wi-Fi connectivity enhances the ability to connect shoppers with the surrounding tenants and restaurants, as well as keep patrons informed of where the action is.
• A sense of community, with places to socialize and connect with others. Often, open-air developments are centered around spaces used for a variety of community events, like yoga classes and concerts, that aren’t necessarily about shopping but make the development a destination nonetheless. Tenants and developers have to offer patrons products and experiences they can’t get from the Internet or a quick trip to the neighborhood grocery store. Shoppers want to go somewhere they can relax, have fun, and ultimately find good value and selection on products. If a center is boring and looks tired, shoppers will stay away. Quality workmanship and materials go a long way to make a center special.
• Density, which can mean developing in or close to an urban core or offering multiple types of services in a single center. It’s the work, live, play idea. Millennials especially are drawn to these walkable micro communities that feature high-end dining and entertainment, as well as residential and office components, all within just a few blocks. And mixed use properties resonate with time-crunched shoppers looking to combine trips, letting them check several errands off their to-do lists in a single stop where they can also dine, have a glass of wine, meet friends, and enjoy a few hours of their day. Ultimately, while they are there, they will spend money.
• Seamless experiences across multiple shopping channels. More than half of consumers now research their retail purchases online, making purely in-store purchase decisions the shrinking minority. In many categories, e-commerce has actually lessened the need for physical stores. Some experts note people increasingly go to stores for social interaction and instant gratification, rather than waiting for delivery of online purchases at home – even if they’ve completed the actual transaction online. This blend of the physical with the digital has accelerated the trend towards experiential retail.
All of this requires retail developers to see past the traditional purchase transaction, which can be hard when their investments are built explicitly for that purpose. Offering the kind of customer engagement that attracts millennials demands deeper collaboration between developers and tenants – they have to work together to create the kinds of spaces and experiences shoppers demand.
And project teams must step up as well – designers and builders – to help their retail clients achieve both business and ROI goals. Project schedule still matters the most for retail developers, but quality of construction and the ability to coordinate the millions of small details necessary to ensure smooth tenant build-outs are critical skills retail owners should consider when choosing a contractor.
Increasingly discriminating shoppers notice aesthetics. Contractors have to build to the highest quality possible; otherwise developments come off as cheap and unappealing. Attention to detail in hardscapes and public areas is extremely important to achieve the desired “feel” of a center. Unfortunately, this is a place where many contractors don’t spend the time to do things right. We know how important the small things are to overall project success, and we help make sure the owner and architect are designing the right materials and features required to accomplish their vision.
Owners should also consider collaboration skills – will the builder show the partnering spirit required to support developer/tenant alignment? A contractor that understands the business deals and lease details struck with each tenant, and manages the project to protect the owner, can be vital to achieving the expected return on large mixed use developments. A builder with the proven ability to communicate and coordinate with tenants and their contractors, to ensure an efficient schedule and a safe jobsite, and to keep every team on site focused on the overall goal – opening day – can give an owner significant peace of mind in the midst of the controlled chaos these challenging projects, with all their moving parts, can become.
As shoppers become more discriminating about where they spend their dollars, so retail owners should become more selective about the contractors they choose to work with. Today’s open-air, mixed use developments are increasingly complex, requiring deep attention to millions of small details. They also must offer unique, quality experiences – which demands quality construction. Price and schedule remain key criteria for choosing a construction partner, but communication and collaboration skills, the ability to understand the financial stakes, experience with challenging mixed use projects, and extensive quality control programs are equally important. A sophisticated retail builder can make a retail developer’s life much easier.
Thanks to North American Properties and McKinsey for the statistics quoted here.