The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products
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32 NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS A paper produced by PEW Research Center, Online Shopping and E-Commerce, stated 64% of Americans prefer buying from physical stores, all things being equal. Consumers use online sources for price and to review information, but tend to buy whichever option provides the lowest price. And for first time purchases, more than 70% think it is important to try the product in person. Also, a great majority of those that shop online are not frequent online buyers. Only 15% of U.S. adults shop online weekly, while 65% shop less frequently. THE GOLDEN RULES OF REAL ESTATE INVESTING HAVEN'T REALLY CHANGED As long as you stick to the long standing rules of good real estate investment, risk will remain in check. The number one rule of real estate is location, location, location. For years, the issue of being overstored has been discussed along with a forecast of the eventual decline of centers considered secondary or tertiary for their markets. Technology has accelerated that process by making marginal locations uneconomic to many retailers. But good locations can still be found in almost any market. The better locations have proximity to amenities valued today, which includes higher education institutions and medical facilities. Demographic trends typically redefine the best locations. Speaking of demographics, another unchanged rule is to pick assets in trade areas that have strong demographic and economic profiles. These are places where people want to live and where there is a growing (or stable) employment base to support them. Moving to the suburbs has been replaced by returning to more urban areas that offer opportunities to work, play, and live. Dense suburban or urban locations face less supply and leasing risk than fringe locations that are typically following an unproven path of growth. And lastly, providing the right tenant mix is critical to control leasing risk and credit risk. There has been significant change in what is deemed the "right" tenant for a given property type. The lines between center definitions have blurred as anchors get redefined, mall shops relocate out of the mall, and fast fashion, fast casual dining, warehouse clubs and discount stores gain share. Strong national tenants bring a lot to a center, however, too often major national tenants have merged, leaving landlords with a very different risk profile than was expected. Leasing to a diverse mix of national, regional, and local tenants is helpful in diminishing risk. Retail centers must constantly evolve to reduce risk, including exciting new concepts that help to expand the trade area or strengthen the draw. Today's new concepts include meeting places such as open space or a pub, restaurant, or coffee shop that brings in a social component so valued by today's consumers. Space may be allocated to services linked to online shopping such as pickups, returns, or just Wi-Fi. Interaction of bricks and clicks is becoming more applicable with almost all retailers and consumers. Consumers want to allocate more spending to experiences and shopping centers should provide them. TODAY'S BEST BETS FOR SUPERIOR RETURN POTENTIAL With the increased risk in secondary centers and a relatively poor outlook for their existing configuration, there is an opportunity to renovate, rehabilitate, or reposition older infill centers. Perhaps the needs of the trade area are not well matched to the existing format and the center needs to be reconfigured to a better use. Retailers want to be in attractive markets, so providing a new, updated center in the right location offers significant upside potential. Also, mixed-use projects are gaining favor as the integrated work-live-play environment has great appeal today. An underutilized secondary center may gain appreciable value through redevelopment with office, multifamily, medical or educational components. Great locations are being created in strong trade areas through development of mixed use projects. Assets serving more non-discretionary needs, such as grocery-anchored centers, have less leasing risk and offer stable income. We believe these assets outside of major markets offer strong relative value. Redevelopment or repositioning of existing centers in built out locations also has the potential for attractive investment returns. Convenient and need-based tenancy should draw persistent foot traffic. Including either the top two leading grocers, or a seasoned specialty food store, or leading drug store as an anchor tenant are examples of this strategy. These types of stores also provide some insulation against online competition, and therefore some protection against credit risk.