The A&G team was thrilled to meet our industry colleagues in person at ICSC Las Vegas, where landlords were excited for another reason—they have been knocking it out of the park with leasing activity.
In other corners, though, the message was more muted.
Here are three takeaways based on A&G’s conversations at the show and our subsequent, on-the-ground observations.
Perhaps because retail and restaurant deals can take three to six months to execute, there’s a disconnect between the bullishness of owners/developers, and retailers’ jitters about their real-time traffic and sales. Retailers are starting to express increasing concerns to us about softening consumer demand amid the macro issues that we read in the papers every day, coupled with high inventory levels. Simply put, many of them overbought as a reaction to the supply-chain crunch, often under the assumption of continued, euphoric spending—now threatened by the worst inflation since the 1970s. Indeed, some chains are already getting aggressive with promotions, cutting back on orders and slashing labor and other costs. Underscoring this disconnect—the disappointing Q1 performance of leading discounters.
By some estimates, construction materials alone are 30 to 40 percent more expensive today than they were before Covid-19. Landlords and retailers alike continue to wring their hands about the costs—in both money and time—to execute new store openings. In some markets, delivery of essential fixtures and equipment can take a minimum of 6 to 9 months. These trends threaten to turn careful planning into guesswork. It’s why retrofitting second-generation space, rather than building new stores, has become the norm.
There are plenty of opportunities, too. In New York City, for example, more retailers are taking advantage of rental rates that can be 40 to 50 percent lower than before the pandemic, and seizing the opportunity to get into coveted areas like SoHo or the Flatiron district. The return to in-person interaction (and the new clothes this requires) also is driving sales at department stores like Nordstrom and Macy’s. And retailers continue to report success in implementing real estate optimization, such as right-sizing store footprints to improve efficiencies.
But both landlords and retailers alike need to carefully reassess their assumptions. They also need to ramp up the frequency of such efforts, simply because of today’s faster pace of change in terms of both the market and the consumer. Failure to do so could result in deals collapsing at the signing stage—a distinct risk in the months ahead.
--Emilio Amendola, Andy Graiser, Jon Graub and Joe McKeska AGREP principals