Exclusive: How Neighborhood Shopping Centers Evolve, Compete, Survive, Win | May 20, 2016 | By Natalie Dolce
LAS VEGAS—As the tenant mix changes, centers are innovating and working hard to compete with regional malls, entertainment centers, other convenience and neighborhood services. That is according to Steve Core, president and Jim Lynch, director of retail management for RiverRock Real Estate Group. GlobeSt.com exclusively chatted with the pair in advance of this year’s big ICSC RECon event.
GlobeSt.com: What are some trends in neighborhood shopping centers that you are seeing today on the West Coast?
Steve Core, president, RiverRock Real Estate Group: “Change” is the byword for emerging trends in neighborhood shopping centers in the Western US. As the tenant mix changes, we see these centers innovating and working hard to compete with regional malls, entertainment centers, other convenience and neighborhood services.
GlobeSt.com: How is the tenant mix changing?
Jim Lynch, director of retail management, RiverRock Real Estate Group: The tenants reflect changing consumer preferences and demand. Millennials have been dubbed “the foodie generation,” and food-oriented space is growing in neighborhood shopping centers. Many more restaurants are opening, and pizzerias, burger places and other fast-casual eateries abound, as well as the popular breweries serving craft-brewed beers.
Restaurants have different parking ratios, and some owners are “giving up” space when necessary to accommodate an increase in parking spaces. If not, they are adding valet parking services, an emerging amenity in the West.
GlobeSt.com: Can these centers’ infrastructure support the growth in restaurant tenants?
Lynch: Restaurants consume a lot more power than stores, and utility costs are higher. Shopping center owners are finding they need to increase capacity at existing centers. For newly built centers, developers are looking and thinking ahead. They are building in infrastructure early on, as they anticipate a sustained boom in restaurant tenancy. Parking is a big piece of this evolution, because people will leave and not come back if parking is a hassle. Everyone remembers bad parking experiences.
GlobeSt.com: Are traditional, neighborhood service-oriented tenants, such as mailbox stores, staying in place?
Core: Again, due to larger trends in our society, service tenants are vanishing. There used to be mailboxes and dry cleaners in every center, but no longer. People are using the internet, and services are easier to find. One service provider can fulfill the needs for an entire community. Today, some developers are even refusing to accept “clean machine” dry cleaners as tenants.
GlobeSt.com: What types of tenants are replacing these traditional stores?
Lynch: Some big-box chains, such as Walmart, are opening smaller stores that allow them to penetrate smaller neighborhoods more deeply. These stores are designed to fit into, for example, 25,000 SF, as opposed to 100,000 SF. Small-format grocery stores are doing the same thing: ALDI, Target Express and Whole Foods 365 are some of the companies implementing this strategy for growth.
Core: As people increasingly choose to shop on the internet, smaller stores can help brick-and-mortar retail businesses survive by serving as showrooms rather than stores. They don’t carry a lot of inventory, so they don’t need much space. Best Buy, currently opening smaller storefronts, is a good example. These showroom-type stores serve an enduring consumer desire: people still like to see, touch and try out products. Then they buy the products from that retailer online, and have them delivered without the hassles of carrying bulky purchases home.
GlobeSt.com: Are there other tenant categories that reflect changing lifestyles of consumers?
Lynch: Americans have become increasingly interested in health and wellness, personal training, yoga, Pilates, massage, and that is reflected in neighborhood shopping centers. Smaller, neighborhood gyms are proliferating. Two of the fastest-growing fitness companies are Orange Theory and Planet Fitness, both taking advantage of an industry trend away from the traditional, big-box health club. Orange Theory is opening hundreds of small, efficient, 3,000 SF “studios” that are close to home and highly visible in the neighborhood center. Planet Fitness, which went public last year, also embraces the concept of “bigger is not always better.” In its small, neighborhood gyms, a basic membership costs $10, with no classes and no frills. The gyms give out free pizzas and bagels on designated days once a month. The customer base is largely made up of consumers who want to ease into fitness, and who come in for a short workout at a convenient location. Both companies are expanding in the West.
GlobeSt.com: What is the impact of these changes on the common areas of neighborhood shopping centers?
Core: With online shopping eating up bigger and bigger slices of the retail pie, neighborhood shopping centers have to create more interesting, attractive and appealing environments. Owners are increasing common-area amenities, with the goal of keeping people comfortable and encouraging them to stay longer. We are seeing a rise in abundant, comfortable seating and shady canopies, plants and misters, water features, fire pits, and, of course, the indispensable wifi. For reluctant landlords, this means higher expenditures, with potential additional costs for keeping the centers clean and safe.
Also reflecting cultural change, neighborhood shopping centers need to be more environmentally aware, for example, using energy-efficient lighting. Reflecting an increased public buy-in to recycling, many neighborhood shopping centers offer more recycling receptacles throughout the sites with more choices for recycling paper, plastic, cans and bottles. Some neighborhood centers are already offering conveniently located electric car fueling stations.