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Don’t Toll the Bell for Retail Just Yet

By Roland Murphy for Arizona Builder’s Exchange

Over the past couple of years, the weeping and gnashing of teeth for retail, particularly in the Big Box sector, has been nearly biblical in its intensity.

A lot of that doom and gloom, however, may just be an abundance of hype and a dearth of fact.

Two recent reports show that, while brick and mortar retail is certainly not in a period of glory days, news of its impending demise is likely greatly exaggerated.

CBRE

A new report from CBRE’s Beyond the Headlines, “The Big Box is Dead,” said, “Despite breathless headlines about various big-box retailers closing stores, others in that category are opening hundreds of stores spanning tens of millions of square feet this year with less fanfare,” according to a CBRE Group, Inc., report released today as the first in a series of “Beyond the Headlines” reports about the retail real estate market.

The report names 13 retailers who plan to open almost 1,700 stores nationwide with space totaling more than 40MSF.

A lot of that space is being taken by discount retailers as tastes and trends in consumer demand in brick and mortar move toward the edges. That ends up creating a need for reconfiguration, flexibility and creativity.

CBRE notes many Big Box stores are specialty vendors – “category-killers” focusing on one type of merchandise, rather than department or general interest stores.

“Arizona, and the Phoenix market in general, has become synonymous with the power center format but with recent changes in the retail landscape this has been changing,” said Jami Savage-Gray, a retail specialist with CBRE’s Phoenix office. “What we’re seeing now, though, is more room for creativity among power center owners to chop up the vacant big-boxes and put in two 20KSF anchors or develop empty parking lots into space for fast-casual restaurants.”

CBRE anticipates an average availability rate for U.S. power centers to register 6.8 percent for 2017, which is more than two points less than the 10-year high of 9 percent in 2009.

Colliers International

The recent Colliers International report, “Greater Phoenix | Retail Q1 2017,” also gave reason to dial down the doom, noting that net absorption is outpacing expectations, vacancy is inching lower and rents are rising slightly.

“Net absorption totaled more than 700KSF in the first three months of the year, the strongest quarter of tenant move-ins in more than a year,” Colliers said. “Net absorption has averaged approximately 500KSF per quarter over the past five years, and the first quarter has generally been the weakest period in each given year.”

So Why All the Horror Stories?

So, with these solid, and even somewhat optimistic, projections, why is just about everything you hear sounding a death knell for retail?

Let’s consider history. Back in the muckraker/yellow journalism days, William Randolph Hearst and other media powerhouses were in an all-out war with each other to peddle the most papers. One technique they figured out changed reporting and public perception forever, and largely for the worse.

Anyone who has read a small-town paper or news site is familiar with the police blotter. It’s a straightforward list of what calls the police took, who was arrested, etc. What the papers came to understand was that no one really cared. Three break ins, three bar fights, one fire, a cat in a tree, two motorist assistance calls and one locating of lost hiker, taken all together, is pretty humdrum and nothing to get upset about.

However, if they reported on specific crimes in lurid detail, ran photos, got quotes from victims and cops about the horrific nature of the events, etc., people flocked to the newsstands to pick up the next edition.

The side effect was a skewing of public perception. Suddenly, what would have been just a listing of three break-ins or bar fights among a series of other events was an epidemic of crime and violence that put the entire public at risk.

The science of perspective and the ability and willingness to step back and look at the big picture was watered down.

Whether assessing crime or commercial real estate, the reality and truth of trends lies in that less exciting, but ever-so-much more rewarding, grand overview. Sure, 100 stores may be closing, but when that space is divided up and rented out to 250 new tenants, that’s hardly the end of the world.

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