Commercial Real Estate: The Future of Retail

Last week we talked about the future of office real estate, but what about retail real estate? Both sectors have been irrevocably impacted by the COVID-19 pandemic for years to come.

In some ways the changes happening to commercial real estate are just accelerations of migrations that were already occurring. For instance, the move to co-working and remote working has been going on for years. The pandemic, of course, has greatly accelerated this movement. Similarly, the retail sector has been steadily declining since Amazon came on the scene, and is now even decimated in some areas of the county.

Of course, grouping all sectors of retail into one is oversimplifying the situation. Malls and department stores have the most unclear future. So much shopping for the kinds of products they carry has moved online. Some malls, however, are still thriving in more affluent areas, but it’s likely that many of these retail product types will be repurposed in the future.

Surprisingly, Simon Property Group, the largest owner and operator of malls in the nation is buying JC Penny out of bankruptcy. It would seem they have a plan for the dubious retail assets… but what is it?

Other retail assets, such as experiential venues, will likely recover as soon as pandemic restrictions in their local areas are relaxed enough to operate profitably. Experiential retail includes everything from restaurants to trampoline parks. Operators such as Chuck E. Cheese is already making kids young and old happy again in some areas around the country. Experiential venues will continue to be in demand, albeit with higher operating costs of labor and materials required to clean facilities, as I expect consumer expectations of higher sanitation and cleanliness will become the new normal for operators from now on.

Retailers such as big box purveyors of food and home improvements will likely continue to operate as they always have. Both are adding delivery and ordering via apps as options for consumers’ purchasing experience. These are innovations that were already in the works but have accelerated due to the pandemic.

I predict small suburban retail for services like insurance agencies and medical practices will continue without too much change, as they’re a specialty service. In fact, I think it’s likely we will see a rise of specialty retail shops, since general retail continues to trend toward big companies like Amazon and Walmart.

Are you worried about the future of your business? Thinking of investing in some retail space but unsure? To discuss your real estate needs or a commercial project, reach out to our founder Stewart Heath at stewart.heath@harvardgrace.com.