By Joshua Burd
For all the talk about the decline of brick-and-mortar retail, a panel of experts said Tuesday that the asset class is anything but an endangered species in commercial real estate.
It is simply one that is changing.
“We wouldn’t agree that retail is dying,” said Herbert Eilberg, chief investment officer at Urban Edge Properties, whose firm has spent nearly $500 million in recent months to buy well-located shopping center properties in the northern New Jersey and the New York metro area. But in doing so, the company has sought projects that already offer “necessity and value” and looked to improve upon them by upgrading the tenant mix and adding to the experience at the properties.
“So when we look at projects, we’re thinking about … how can we complement that with things like food, with things like experiences?” Eilberg said. “A word we like to use is engagement. Are we engaging the consumer?”
Eilberg spoke Tuesday during a forum in Teaneck hosted by NAIOP’s New Jersey chapter, which highlighted changes to the retail sector and the demands of consumers. From freestanding shopping centers to New Jersey’s famous malls, panelists conceded that inferior locations are likely to suffer in the changing market, but said the brick-and-mortar business will continue to thrive in well-located properties that can attract what are known as experiential retailers.
Nancy Erickson, a broker and executive managing director with Colliers International Group, said those retailers include restaurants, discount fashion retailers and entertainment operators such as luxury dine-in movie theaters. Other tenant sectors that are growing and “not being affected by the internet” also include medical services and fitness, both boutique operators and national chains.
Those operators are fueling growth in both freestanding shopping centers and in downtown mixed-use projects, Erickson said. With the latter, developers have the opportunity to use fitness and convenience tenants in place of certain amenities within the residential portion of their projects.
“All of the amenities become the base of the building,” she said. “It becomes very successful, it will trade well at some point and now you’ve actually put additional value into these units that are above.”
Moderated by Clark Machemer, senior vice president and regional development officer with the Rockefeller Group, the panel discussion touched on everything from demographics to capital markets. Brian Whitmer, senior director with Cushman & Wakefield, said investors have responded to quality retail properties with good tenant mixes, noting that interest has returned after a lull that set in amid uncertainty over the presidential election and interest rates.
“We’re seeing the capital and buyers come back into the market,” said Whitmer, a member of the firm’s Metropolitan Area Capital Markets group. “That means data points. Data points give comfort to sellers and now you’re seeing sellers start to become more active.”
Many of those sellers have been looking at “strategic dispositions” of noncore, secondary and tertiary assets, he said, but investors have provided a market for such properties. He added that the investor profile has evolved to include the likes of high net worth individuals, 1031 exchange buyers and syndicated money, filling the void left by others.
When it comes to new construction, developers are also seeing the changes. Mark Pottschmidt, co-founder of Stanbery Development, said the model has evolved from having new developers being anchored by fashion to now being anchored by food and restaurant concepts.
At the company’s planned mixed-use project in Parsippany, where it is redeveloping a nearly 300,000-square-foot office complex, he expects 30 to 40 percent of the tenants to be food operators. But he also cited the need to reform New Jersey’s outdated liquor license laws in order to help improve that formula, touching on a policy issue that has become a priority for NAIOP New Jersey in recent years.
“We’re hitting all of the hours of the day — breakfast, lunch and dinner — from fast casual to white tablecloth, and the liquor licenses are crucial to a project like ours because you need to get that full-service white tablecloth menu to really put the flag in the project as the anchor,” Pottschmidt said. “And that’s tough to do with a project that’s 100,000 square feet because the liquor license is expensive.”
