As ecommerce continues to grow, brick-and-mortar retailers are feeling the hit. Reports indicate store closings have hit the worst level since 2010, due in part to bankruptcy filings by major retailers, and an estimated 200 malls have closed down in the past two years. Bloomberg Intelligence reports there were only seven weeks from Q1-2015 to Q1-2016 where retail store traffic rose year-over-year. It is estimated that for retail stores in North America, per-square-foot sales have declined $35 per square foot from 2006 to 2015 ($200 to $165).
In Massachusetts, retail stores totaling less than 2,500-square-feet are the largest portion of the state’s retail market yet they have the highest vacancy rates, coming in at 14.7 percent in May 2016, boasting the third consecutive annual increase since 2013. In Westchester’s Village of Mount Kisco, retail vacancy rates for 1,000-10,000-square-foot properties climbed from 10 percent in 2011 to roughly 25 percent in 2015/2016.
If ecommerce continues to grow 15 percent year over year, it will double in five years and reach $700 billion. With ecommerce sales rising (In the first quarter of 2016, ecommerce sales were up 15 percent over the prior year, account for 7.7 percent of total retail sales), retail vacancy rates will also continue to rise. Yet, while many smaller retailers and Class-B and Class-C malls are closing, new Class-A retail assets are performing well and projected to continue doing so.
In the Bronx, the retail market is strong with Class-A retail developments such as Riverdale Crossing and 5740 Broadway luring national credit tenants into a market that has been historically comprised of mom-and-pop shops.
For investors willing to make improvements and reposition assets, under-performing and abandoned Class-B and Class-C retail assets are prime investment opportunities. By making capital improvements, investors can reinvigorate these properties and create the conditions to not only attract new tenants but raise rents. In some instances this may entail making moderate improvements like enhancing the visibility of street signage or adding additional parking, while other assets may require the reconfiguration of space to attract a national credit tenant or reinventing itself with a more specialized tenant focus.
Among Northeast PCG’s current retail assets for sale is 350 Bridgeport Avenue in Shelton, Conn., which is a +/-20,000-square-foot retail plaza built in 2006. Bridgeport Avenue is the most desirable retail corridor in Shelton and the property provides an investor with the opportunity to reposition the asset by re-leasing vacant space, enhancing visibility and improving tenant synergies.
“The Connecticut market has seen dismal growth due to an unfriendly business environment. However, good retail locations in affluent communities are still prospering,” David Almeida, Senior Associate in Northeast PCG’s Connecticut office, said. “Our firm has seen a number of investors successfully turn around well-located vacant or mostly-vacant retail plazas through an extensive capital improvement plan. Improvements that are focused on enhancing the retail experience for customers have the greatest effect on turning around these plazas. Landscaping, outdoor eating space, improved parking surfaces and new facades are all ways in which a property owner can add value and improve their property relative to the competition.”
Interestingly, while the growth of ecommerce is hurting the bottom lines of many brick-and-mortar retailers, ecommerce giant Amazon has begun opening brick-and-mortar stores and is reportedly planning to build physical grocery stores as an extension of online food delivery service.
While the Class-A retail market remains strong – and as ecommerce sales continue to grow – investors face significant opportunities to purchase undervalued Class-B and Class-C retail assets and either make capital improvements to attract new tenants or reposition them for new uses.
Looking to add value to an investment real estate property? Download our free guide to value-added real estate investments for helpful and actionable tips.