Brick and Mortar is Still Alive

September 28, 2017

Contrary to popular opinion, not all shopping centers and retail stores are headed to the graveyard. Although some such retailers are already dead or heading in that direction, our chart of the week shows that while the absolute number of net store openings has dropped, they are still positive and expected to outpace store closings. Additionally, the overall composition of retailers has changed over the years. Today, store openings are less flashy than they used to be and companies are more cautious in their plans for growth. We are seeing strength in the retail space from discounters such as TJ-Maxx; “fast-fashion” retailers like Zara and H&M; beauty brands such as Ulta and Sephora; and fitness companies like Soulcycle and Orange Theory Fitness.

So what does all this mean for real estate investments? The majority of retail exposure for real estate funds in the NCREIF-ODCE index is typically in community and regional centers with heavy foot traffic. This includes grocery-anchor malls and areas where store openings remain positive with minimal exposure to the large mall anchor stores that dominate the headlines. These investments should flourish in today’s market, as real estate investment managers anticipate future shopping patterns of the ever changing consumer.

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