• Retail

Garrick’s 2019/2020 Predictions

Week of April 1, 2019
By Garrick Brown

As promised in my last Newsline, this edition features my predictions about retail real estate for 2019/2020.  As it has been a few extra weeks since my last edition, I figured I would make it up to you and double up on the trends I see happening.  Honestly, there are 30 or 40 that I think are worth watching but these are the ones I think are most important.  That said, my colleague Pam Flora and I are going to be hosting a webcast next week where we will be discussing the trends listed here, as well as a bunch that aren’t.  It should be a thought provoking and fun way to spend an hour, especially since by then all of you will be done with your NCAA brackets.

Our webcast, “Are You Experienced?” will explore the current state of retail; challenges and opportunities, who is opening stores and who is closing them and the hottest new trends to watch.  In addition to our big picture predictions and will focus on the rise of experiential retail… what works and what is next in the retail space. Please join us on Tuesday, April 9th at 1:30 PM EST.  To register, just click on the link below.  Also, keep in mind that if you cannot make it, register anyway.  After the webcast we will be making a recording of the presentation available to all registrants… so you can catch up on the trends that will shape the market ahead at your leisure.

To register for our webcast, CLICK HERE.

Now on to my top 20 predictions for 2019 and 2020:

1.  Strong, but diminished, economic performance in 2019. Focus will increasingly be on the inevitable end of this economic cycle and this will have a growing impact as we head into 2020 and beyond…

2. Retail bankruptcies will continue at a pace that rivals last year, but are not likely to surpass it.

3. While strategic closures were not a significant factor behind last year’s store closure level, they increasingly will be as retailers look to cut underperforming stores and improve balance sheets before the next recession hits.

4.  The bifurcation between Class A retail real estate and Class B and C will widen even more, with Class A holding its own (in terms of vacancy, absorption and rents) while Class B and C assets facing even greater challenges ahead.

5.  Ground-up retail development levels reach record lows with nearly all of it in high population growth markets. Speculative development (save for increasingly modest levels of small shop space) will be virtually non-existent.

6. Retail redevelopment levels reach record high, with conversion to mixed-use and leasing to non-traditional/non-retail tenants driving activity.

7.  Expansion of digitally native brands to bricks-and-mortar space will to continue to explode. Within the next few years digitally native brands will become one of the greatest sources of occupancy growth.

8.  The retail amenities arms race for office users will intensify in both urban and suburban settings. The drive to keep skilled workers will likely withstand the next downturn with retention remaining an issue in a marketplace where the divide is increasingly the skilled vs. unskilled.

9.   We are past the restaurant boom thanks to market saturation.

    • Sector will still post positive net absorption but restaurant expansion to slow, with a few exceptions (food halls, craft brewing, entertainment related).
    • Restaurant failure rate to climb as concepts struggle with soaring labor costs, high urban rents and the challenge of passing on rising food prices to consumers.

10.   Value-oriented concepts will continue to drive the greatest amount of occupancy growth, but expansion for those categories will increasingly slow as we head into 2020 and beyond.

11.   Urban high streets, particularly those with a high exposure to mid-price brand flagships, will continue to experience rent resets. While Manhattan will continue to be the market most impacted by this trend, the impact in other markets will be varied, with less impact.

12.   The industrial boom is not over. Retailers will continue to build out their distribution models, with many increasingly incorporating hub and spoke models to speed delivery times.

13.   Pop-ups will increasingly come into play across the board. Look for more landlords to create permanent, rotating pop-up space within malls and urban settings. These will cater to:

    • Event-oriented pop-up space.
    • Experience/Cultural pop-up space.
    • Third-party pop-up space providers.
    • Test-runs for permanent space.

14.   New, unique upstart brands that connect with the Millennial consumer will continue to rise, creating challenges for some retailers, but golden opportunities for others.

    • Look for more store-within-store collaborations.
    • Look for more in-store temporary pop-up collaborations.

15.   Look for the eGroceries to ramp up, but the issue of final mile delivery will continue dictate that delivery will be done from bricks-and-mortar stores.  eGroceries will cause disruption within the grocery sector, in terms of winners and losers based upon those that can execute both with BOPIS and home delivery.  But it will drive substantial occupancy growth in real estate.

16.   Co-working space as retail tenant will peak in 2019 and 2020, in both urban and suburban malls. However, the redevelopment of dead anchor space to office, medical office or campus space will be a bigger trend.

17.   The rise of upstart chains will continue to be an underwriting issue for many landlords. Those with deeper pockets that can underwrite compelling retailers with limited credit history will benefit most.

18.   Look for more well-capitalized retail REITs with strong portfolios to buy back stock in 2019 thanks to undervalued Wall Street pricing.

19.   Retail investment activity will likely slow through the next recession.

    • Buyer focus on Class A will strengthen, but fewer sellers.
    • Rising cap rates will create opportunistic plays for under-valued value-add properties. Opportunistic investors who know what they are doing could land bargains.  Those that don’t, could lose their shirt.
    • Retailers that own real estate, particularly urban flagships that could be converted, will increasingly seek to monetize those properties.
    • Stock market volatility could drive greater demand for Class A net lease opportunities, particularly those with long-term leases in place to gold standard credit tenants.

20.   It is critical that challenged retailers, particularly those whose previous value proposition to the consumer was convenience of access, use what time we have left in the cycle to speed their own reinvention and evolution. Focus on value will likely only be feasible for the largest players. Boosting the customer experience is critical.

This post is commentary from the latest edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by emailing garrick.brown@cushwake.com.

Garrick Brown serves as Vice President, Retail Intelligence for Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.

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