Going Local: Retail Tenants Post-Covid-19

A New Retail Challenge

It has been well-reported that Covid-19 is hitting the retail real estate industry hard. Over 25K stores are expected to close permanently. Many local and regional retail & restaurant operators won’t reopen their doors.

National chains are re-evaluating their portfolio. They are slowing expansion plans or reducing store count, like Starbucks.

As the industry braces itself for ongoing disruptions, strategies are forming to respond to the changing real estate landscape. The greatest and most important challenge is to have the right leasing strategy — ensuring brokers and landlords can find tenants to fill in current and upcoming vacancies.

Going Local — the Poison and the Antidote

Although local businesses are hurting, they are also the right partners who can adapt quickly to a new normal.

David Greensfelder, Managing Principal of a leading Bay Area real estate services firm, explained in a recent GlobeSt.com article that local retailers and restaurants are the key to the future of shopping centers. Noting their adaptability, David explained that local retailers “having their ears closer to the ground than chains enables them to gauge changing demands and tastes, and to make necessary adjustments more quickly than their chain counterparts.”

I asked David what this means for leasing strategies. He shared that:

“Retail is evolving at a pace that may be 10X faster than before COVID. Local retailers will certainly be hit hard, but they may also be really well positioned to adjust and respond to local conditions. There will be some high profile chain retail failures, but I also expect that there will be some equally high profile local merchants who figure out how to meet consumer’s rapidly evolving needs, and carve out interesting and economically viable niches as a result. Owners will do well to be on the lookout for these operators.”

A recent Chain Store Age article also emphasizes the likelihood that “smart operators” who shut their doors will be back and hunting for new opportunities.

A Long-Term Solution

Not only are local tenants smart targets in the wake of Covid-19, but the industry has been trending towards local for some time and merchandising approaches adapt to e-commerce competition.

Local tenants often pay higher rent per square foot and are a draw for consumers looking to shop & eat local.

So what types of local businesses will be hot commodities over the next 6–18 months? We took a look at data from April & May on the Resquared tenant recruiting platform to see who brokers & leasing teams have been searching for and messaging.

These results are an early indicator of the types of businesses retail professionals believe can help their shopping centers. Medical tenants (think chiropractors and doctors offices) are highly sought after, as they are seen as relatively stable tenants. Demand for health/wellness and outdoors products have skyrocketed as consumers have grown in health conscientiousness in 2020. These trends are likely to drive merchandising strategies in the near future. 

To learn how leasing pros are using new technology to find local tenants, check out a recent case study with brokers from Colliers International: Retail Canvassing 2.0.