Seattle -- The marriage of brick-and-mortar with mobile e-commerce and the likelihood of more big-box stores moving into urban areas are among the nine trends to watch this year, according to commercial real estate services firm Colliers International.
The trends are detailed in Collier’s annual U.S. Retail Highlights: 2012 Outlook, an in-depth report that chronicles current retail conditions along with the trends that will shape the 2012 retail landscape.
1) A wild ride for equities in retail real estate investments: U.S. equities markets will continue to react to news on any and all economic indicators, including ongoing news of store closings.
2) U.S. manufacturing improvement accelerates: Look for sales of big-ticket items to improve as consumer optimism (and beat-up cars and fridges) releases pent-up demand for durables. In this environment of low interest rates, businesses and households may be more comfortable with — or more capable of — taking on new debt.
3) "Customer experience" will trump "price" in the value equation: Retailers increase value by either lowering their prices or increasing the quality of their "customer experience," which means removing every potential barrier that stands between converting a customer's interest to purchase, into the intent to purchase. Innovation in improving the customer shopping experience whether online, or in the store, will be the key.
4) Retailers will roll out more limited editions, exclusives and mobile-device specials: 2011 retail sales piqued shopper interest through exclusives and limited editions (Missoni label at Target) or with "limited-time offers" (LTOs) that drove traffic. LTOs generate urgency in a shopper who must be "sold" before parting with her money, especially for a full-price item. Merchandise and deals only available online or via a mobile device are expected to increase this year.
5) More strategic acquisitions across brands, assets, property sectors, and technology platforms: Retailers are investing in smaller companies to enhance their multichannel integration. Strategic acquisitions allow the acquirer to extend their brand outside its core competency, such as Starbucks picking up juice bar concept Evolution Fresh.
6) Distressed retail property asset pipeline begins to move: Data shows that more than $350 billion in commercial real estate loans will mature both this year and in 2013. The opportunity for retail investment lies between the trophy assets still trading at low cap rates, and the large pool of marginal, low- or no-cash flow assets that can't be refinanced, which will either default on maturing debt or be transacted in a "fire sale."
Also, more institutional players will be scouting around for retail portfolios (public REITs are sitting on huge capital reserves).
7) Foreign investors turn to retail in United States: Yield-seeking investors need places to park their money, and the stability of U.S. property markets still make them attractive destinations for "flight capital." Recent data confirms that the U.S. is still a leading destination for global capital flows. Among property types, foreign capital may now look to shopping centers or broken land deals in space-constrained or high-growth markets.
8) Expanded capacity, but still stringent underwriting: Non-performing real estate loans remain highly problematic for all banks, but stronger regional banks have slowly resumed commercial lending. As mortgage production ramps up, investors will see banks being more competitive, but with far more stringent underwriting standards. Properties need to demonstrate solid cash flow and real net operating income (NOI), assume conservative rent increases, and any loans approved will be recourse, except for the best customers.
9) Urban site-seeking retailers, including big boxes, are back in force: The economic crisis hit suburban communities much harder than their urban counterparts, so as retailers seek out lower-risk growth opportunities, underserved urban areas fall firmly within the crosshairs. Blocked out of urban areas in the past because their stores were too big, big-box retailers now have two options: 1) They can go in with their large-format stores, as renewed interest in urban locations coincides with municipalities' worsening fiscal problems…or, 2) Retailers can test small-format store options, take infill space, and co-opt share from smaller local operators.
Mark Keschl, national director of retail for Colliers, expressed optimism about the overall state of retail.
“Even if economic indicators remain inconclusive for the next few quarters, the retail space is poised to generate a lot of headlines as the competition to win shoppers' hearts and wallets grows ever more fierce. 2012 should be a promising year," he said.