Junior anchors, specialty grocers and international retailers are creating such demand for open-air centers that many landlords now have the luxury of waiting for the highest and best uses to fill their rare vacancies, said a panel of developers at the ICSC Open Air Centers conference in Dallas Thursday. “It’s a good time to be in real estate,” said Lawrence Casey, president and COO of Costa Mesa, Calif.–based Donahue Schriber.
Though there is some new construction under way — about 35 million square feet of retail annually, versus 150 million square feet before the recession — most developers are content to reposition, retenant and expand existing shopping centers, said Conor Flynn, president and COO of Kimco Realty Corp. “You’ve got to be able to unlock that value and do more to strengthen the asset.” Recapturing space from struggling retailers such as Kmart has become a more common practice as demand from a growing universe of expanding retailers escalates, Flynn said. “If you do get a box back, you are going to get the pick of the litter.”
To be sure, the easing of gas prices is freeing up some consumer money, but “the shopper appears to be smart enough this time around to know this is a temporary situation,” said Christopher Conlon, executive vice president and COO of Acadia Realty Trust. If anything, additional spending power is showing up at the grocery checkout counter, said Flynn. “They are buying steak instead of chicken,” he said.
A big priority for Federal Realty Investment Trust is making doubly sure its grocery anchors are on top of their game, said Chris Weilminster, the firm’s executive vice president of real estate and leasing. Since boomers and Millennials make up 51 percent of grocery customers, catering directly to their changing needs is a must, he said. Weilminster cited one expert who said the current 1 percent of grocery trade that is done online could rise to 7 percent by 2023.
Conlon says conventional grocers are under siege from specialty grocers, convenience stores and other venues that sell competing products, and he cautioned landlords not to expect too much from them going forward. “If these grocers don’t have a well-established plan of how to deal with all the changes, they are at risk.” In the food-service arena, national restaurants are expanding rapidly, said Flynn. “It seems like you see a new one every week that wants to double or triple their store count, and they are willing to pay for visibility,” he said.
Junior anchors are no longer dependent on big-box super anchors to sway their real estate decisions, said Flynn, and Weilminster concurs. “They are making smart decisions, and they aren’t being pushed around by Wall Street like they were before the recession,” Weilminster said. With cap rates still depressed, most acquisitions are not being seriously pursued, Weilminster said — although Acadia Trust is a little more active in acquisitions where it can add significant value, according to Conlon.
One ought not seek too many new retail projects in the near future, Flynn said, because the costs and the yields are not supporting that. “But the retailer demand is there,” he said. “They’d love to see it.”