The Changing World of Retail Forces Property Owners to Adapt

While e-commerce makes shopping more convenient for millions, especially those in rural areas, it’s having a negative impact on brick and mortar stores. By June of this year, there had been over 2,500 store closings throughout the United States with projections estimating the closing of 600 more stores by year’s end. Sears and Toys R Us aren’t the only ones closing the doors on stores throughout the country and the commercial real estate sector is taking this hit the hardest with a 60% decline in retail absorption.

The Digital Age Forces Commercial Real Estate to Change

Even those stores that will remain open are moving into smaller locations, now that they don’t need the manpower or physical space that was once so essential. This means commercial real estate management companies are forced to evaluate how they offer their units to new businesses. The issue of size is forcing many property owners to divide up larger properties and offer smaller units that will appeal to more small business owners.

This new approach is most prominent in New York and property managers are taking it a step further by taking bigger risks on unproven businesses. Typically, property managers tried to avoid boutique fitness stores and casual cafes, but those are the tenants most interested in the smaller spaces now being provided.

In one example, Brookfield Property Partners invested in seven Bleecker Street storefronts, which it hopes to fill with new business. They hope to attract e-commerce businesses with the promise of expanding and establishing a brick and mortar presence. Already, Margaux, a shoe retailer, has joined the seven shop community, where a few art and cultural shops are also launching a presence. The physical locations may help these businesses expand their reach and attract new online consumers.

Commercial Real Estate Targets Service-Driven Businesses

Commercial real estate management in metropolitan cities, such as New York and Chicago, are finding that service-oriented businesses may be their saving grace. While most products can be purchased online, services will need to be provided in physical locations. Gyms, restaurants, and other service-related businesses are the key to driving commercial real estate in today’s market. These are experiences that the internet can’t provide.

Some product-oriented businesses may also thrive in this new atmosphere, but it will depend on how they utilize their commercial space. Younger generations, those coming of age after millennials, have started to demand more transparency. They want to see how their products are made and they want to know that those businesses take environmentalism and waste elimination seriously. For instance, Ample Hills Creamery opened a factory and museum in Red Hook, which allows their customers to see their foods being made.

The new world of retail and the management of commercial real estate will hinge on offering services, such as entertainment, dining, and fitness. By creating a retail community that promotes those services, brick and mortar stores that offer products can also thrive. Between dining and entertainment, people will also be likely to visit shopping centers and they’ll be more apt to buy in those circumstances. Where a sole brick and mortar store may not do well, a shopping center, offering dozens of smaller businesses, may be the key to bringing consumers back into physical stores.