Changing Spaces - How New Demands Are Changing Everything From Malls To Golf Courses To Warehouses

Coresight Research has estimated that 25% of America’s roughly 1,000 malls will close by 2025. That is going to lead to a lot of shifting properties. For example, mall owner Macerich sold its 92-acre Paradise Valley Mall in Phoenix to a mixed-use real estate developer for $100 million to create a new community of homes and offices. Macerich, which owns or has interests in 47 regional shopping centers, will retain a 5% stake in the project. Milwaukee is seeing the same playbook. Two separate proposals look to develop over 700 apartments near Wauwatosa's village area and Mayfair mall and are scheduled for a Plan Commission review. Expect to see more of this as home prices rise while class B and class C malls struggle. The pandemic has increased stress on physical retail spaces as malls were already struggling to compete with off-mall Big Box stores like Target or Walmart.

J.P. Morgan, Goldman Sachs and other lenders that backed the American Dream megamall are close to a deal to take a 49% stake in two other malls owned by developers Triple Five Group, including the Mall Of America, as a collateral for it’s $1.2 billion construction loan which has defaulted in part because the mall is not fully open. Will the American Dream survive as the new shining example of the blending of entertainment and shopping? Triple Five Group is betting on it and Tanger Outlets recently reported that traffic is back to normal. Rather than make long-term commitments to lower prices, mall owners are offering short-term leases to be more competitive in the face of a growing exodus of retailers who favor less expensive off-mall properties.

For example, last week Herman Miller announced the buildout of a new Chicago-based, multi-brand showroom and experience center covering Herman Miller, HAY, Design Within Reach. Herman Miller Group showrooms are located on the floors above, along with a design center that includes an open lounge and meeting area for shoppers to meet and collaborate with designers. It also features a library, exhibition space and outdoor terrace.

There has been good news from department stores, key anchor tenants of the malls. Good news came from Neiman Marcus, which has emerged from Chapter 11 and recently restructured its debt at 7.1% to reduce its interest payments and emerge stronger and more profitable. Macy’s CEO Jeff Genette announced that business from Macy’s loyal customers is already up 10% from the fourth quarter. “That’s clearly the vaccine starting to take root,” he told CNBC’s Jim Cramer in a “Mad Money” interview. “What people may not know is that we’re No. 2 in our categories in the nation and we were able to hold our market share in 2020,” he said. “Digital is enabled by having strong brick and mortar.”

Athleta confirmed its store expansion strategy this week as well, looking to open 20-30 more stores. The Glossy interview with Chief Product Officer Jana Henning was telling: “We have seen a consistent uptick in [traffic in] stores. So it will be really interesting [moving forward] — the markets are very different. We look at the sales data across the U.S., and as you can imagine, some markets are much stronger than other markets. There is a pent-up demand; there is this want to go out and see what’s happening in the world. And then, on the polar opposite [side of the spectrum], there are also people who are saying, ‘Maybe I don’t ever need to go into a store again.’ What we anticipate is that traffic will return, [because] we have an incredible environment in our stores, and we’ve got amazing employees that love the brand and connect with the customer.”

With stores battling Amazon for last-mile logistics, one hot real estate area is warehouses. The sudden eCommerce demand spike laid bare that we are over-stored and under warehoused. While some of argued malls should turn into warehouse fulfillment, that presents challenges around large trucking volumes in mixed consumer spaces. Why endure those challenges and the costs of conversion when you can build from scratch? 2021 is set to show significant growth, after several years of strong volume.

That’s exactly what’s happening. Amazon is building a $350 million distribution center on a former 18-hole golf course in the town of Clay, New York and putting a fulfillment center on a former golf course in Alcoa, Tennessee.

“Our customers are preferring more expensive real estate,” said Chris Caton, managing director of global strategy and analytics at Prologis. “They’re no longer going out into really remote locations, like Columbus or Indianapolis or Memphis. Instead, a lot of that demand, and in particular the rent growth in our business over the last decade, has been focused in major 24-hour cities.” But the cost of real estate and build out varies considerably by city. Proximity is key or as the old adage goes the 3 secrets to real estate are “location, location, and location.”

The national average of industrial rents rose 5.1% year over year to $6.47 per square foot in February, according to data from the real estate tech firm CommercialEdge. And new leases fetched a 14.7% premium, averaging $7.42 per square foot, the group said.

With financial incentives rapidly changing, expect more in the reshaping of commercial real estate including malls, warehouses, golf courses and anywhere the land is not properly valued for the future.

This Week In Retail Tech Implementations

Every week we cover the top retail technology updates and implementations. There’s plenty of technology updates in eCommerce and online advertising, but that’s not our focus. We focus on where 80% of retail transactions occur - in-store from computer vision, QR codes, RFID, loyalty programs, lift and learn sensor technologies, smart shelves and electronic shelf labels, supply chain management, in-store analytics, personalization and payments. This Week’s Top Retail Technology Investments include:

  • RIS releases its annual retail tech survey showing 61% increasing budgets substantially

  • Walgreens to offer banking services through InComm Payments partnership, capitalizing on mobile loyalty usage up 41%, proving out one of our 2021 Retail And Technology Predictions

  • Amazon considered opening up discount clearance stores pre-pandemic. Will they again in 2021?

  • Albertson’s partners with Google for deeper integration with Google Maps, but is this really just about ads?

  • Tesco is partnering with Google for local inventory in product searches. Is the search demand really there?

  • Glovo raises $528 million for local grocery delivery in Spain, heating up the European delivery wars we covered last week

Stories To Share At The Retail Water Cooler

Amazon-backed at home fitness company Tonal has raised a new $250 million round at a $1.6 billion valuation, making it the latest unicorn funding. Sales increased 8x YoY from the at-home fitness surge, caused by the pandemic.

First there were rumors of toilet paper shortages. Now expect price increases according to USA Today. "The percentage increases are in the mid-to-high single digits," Kimberly Clarke said in a news release. "Nearly all of the increases will be effective in late June." The prices of commodities have increased steadily over the pandemic with the cost of lumber up 188% since pre-pandemic.

Harry's Inc. announced it raised $155 million led by Bain Capital and Macquarie Capital. Harry’s is now valued at $1.7 billion, and is looking to add brands to its portfolio to expand.

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