A Decade Since the Recession: How Retail Recovered
- Dec 06, 2017
The global financial crisis impacted all sectors of the real estate industry, and retail was no exception. Weaker consumer buying power led to store closures and thus a shrinking retail segment. A decade ago, the sector had grocery stores to thank for keeping it alive, and ever since, shopping centers have been transforming to meet the needs of the modern customer. Katy Welsh, senior vice president of retail leasing at Colliers International in South Florida, discussed how the retail sector has changed since the recession and what’s in store for the the shopping experience of the future.
What impact did the Great Recession have on shopping centers?
Katy Welsh: The last recession had a big effect on shopping centers in the early stages, with tenants closing stores and a lack of new stores opening, which was very different to where we are today—stores closing, but many more stores opening. I think everyone was afraid to move, so to speak. Owners were holding on and selling properties. It was difficult for owners to obtain financing, so we saw stores closing, rent reductions and brokers leaving the business. It was a mess, but we recovered nicely.
What strategies have been most efficient in relaunching retail properties that were hit by the recession?
Welsh: During the recession, the wheels began to turn slowly. We saw folks out of work opening their own businesses. Large companies offered incubator programs to help tenants start new businesses. Some landlords offered several months of free rent to attract tenants, while others helped tenants with their marketing efforts to help boost pedestrian traffic to their shops and the retail center. Many distressed retail centers sold to new owners, who began to reposition the properties by investing in them and attracting new tenants. At that point, we began to see occupancy and rental rates go up.
How is the retail sector performing today?
Welsh: Outstanding! So many possibilities for shopping centers in creating places and experiences for people. It’s so nice to see shopping centers alive with places for kids to play, people to meet, textures and water features to admire, and, of course, interesting stores to shop in. We do hear that e-commerce is hurting brick-and-mortar retailers, but South Florida isn’t feeling that effect. Our vacancy rate is one of the lowest we have ever had. When a large retailer goes out of business, we have several smaller retailers waiting to subdivide the space and lease it.
Did the recession change the way retail properties are perceived by investors and/or owners?
Welsh: The one thing that the recession changed is the way landlords and lenders perceive risk. Landlords have added some safety measures to the leasing agreements to protect themselves in the event of a market slowdown. Investors’ perception of retail was more impacted by the e-commerce revolution. In the beginning, everyone was fearful of retail, but that has changed now with the understanding of the new normal.
Brick-and-mortar stores are key to internet sales and internet sales are driving traffic to the physical store. The stores that are closing did not adapt to the changing consumer, just like Zayre, Ames, Woolworth, Corvettes and countless others of the past did not survive. Retail has always been evolving and recreating itself. First there were open-air malls, then the enclosed mall, then mixed-use and so on.
What do you expect from the sector going forward?
Welsh: Excitement is the first word I think of in response to your question. Increasing entertainment in the shopping experience, with people socializing at the shopping center, educated shoppers using the internet as part of the shopping experience and more targeted shopping experiences within the stores, and restaurants.
Image courtesy of Colliers International