Real estate developers working on projects across the country see reasons for optimism — but plenty of reasons for pessimism, too.
Beneath the outward displays of institutional optimism, there was an undercurrent of anxiety at last week’s International Council of Shopping Centers New York and National Deal Making at the Jacob K. Javits Convention Center here, as executives lamented the lack of deals taking place, even while they talked up potential agreements and developments that could come to fruition in 2017.
The key trends remained the ongoing rush to develop omnichannel, the search for more “experiences” to lure shoppers, the wider adoption of pop-up formats to create excitement and generate interest and the perennial search for new retail concepts.
Macerich in May at Santa Monica Place introduced WithMe, whose 100-square-foot to 1,000-square-foot units are equipped with technology such as interactive tags, responsive display tables and directional audio.
“We’re trying to experiment with different brands in a kiosk,” said Michael Goldban, senior vice president of leasing at Brookfield Properties.
Goldban said Brookfield Place in lower Manhattan will be activating five or six short-term pop-ups using WithMe, an on-demand retail platform for featuring brands’ limited-time collections and exclusive products in a setting that combines aspects of brick-and- mortar and online shopping.
The trend, at least in Manhattan, is being fueled by softer rents and a dearth of tenants. “We’re doing short-term leases, even at City Point,” said Christopher Conlon, executive vice president and chief operating officer of Acadia Realty Trust, referring to the 1.8 million-square-foot project in Brooklyn. “Retail is much more fluid. Consumers don’t want to see the same old. The anchors at City Point are all set. We can afford to do some test-driving.”
Simon Property Group last month unveiled a pop-up showroom-cum-store that will be permanently housed at Roosevelt Field Mall in Garden City, N.Y., and will showcase a mix of rotating brands.
The emphasis on food is mirrored throughout the industry with Eataly, for example, opening at Century City in Los Angeles in February, and negotiating to lease space in Washington, D.C.; Philadelphia; San Diego, and possibly a second unit in Chicago, even as it builds a 40-acre theme park in Turin, Italy.
Rents in parts of Manhattan have dropped as supply has risen, but demand has yet to materialize. “Prices are adjusting, but demand hasn’t flowed back in,” said Gene Spiegelman, vice chairman of retail services at Cushman & Wakefield. “The market that needs the greatest balance is SoHo, and the Meatpacking District, to some extent. There’s more inventory. Other than Nike and Perch, we haven’t seen a lot of big deals in SoHo.”
Stephen Stephanou, a principal at Crown Retail Services, said, “There’s the overhang of the election. The sense of the apparel bridge category, and apparel across the board, is that retailers are not doing deals. Also, there’s no big trend like a miniskirt or bell-bottoms that everybody has to have. There hasn’t been anything revolutionary in fashion. People aren’t looking for a lot of new stores, and if they are, they’re looking at smaller footprints.”
Wade L. McDevitt, founder and chief executive officer of The McDevitt Co., which has long handled real estate for Urban Outfitters Inc., said, “Urban Outfitters is looking at big stores on a very selective basis. The big stores build better brand equity, but now because of omnichannel, the location has to be more expressive and promote the brand. For Urban, real estate is the ambassador of the brand.”
Urban’s subsidiary Anthropologie will continue to open large-format stores such as the 20,000-square-foot unit it unveiled at the Stanford Shopping Mall in Palo Alto, Calif., two weeks ago. The unit offers apparel, furniture, décor, shoes, intimates, jewelry and beauty as well as a Bhldn bridal salon and cafe inspired by Terrain.
While brokers at ICSC lamented the dearth of deals, several new retail concepts emerged, including Ann Mashburn and Sid Mashburn, side-by-side men’s and women’s shops; Follain natural cosmetics, and Rapha, a high-end performance bicycle apparel and accessories line, which LVMH Moët Hennessy Louis Vuitton is said to be interested in acquiring. Ulta, mainly a suburban phenomenon, is moving into cities, including Manhattan; it reportedly has a deal in the works on Fifth Avenue. Australia’s Cotton On is continuing its U.S. expansion, and R.M. Williams, men’s and women’s apparel and footwear from the Outback, has opened a handful of units.
Jodie McClean, ceo of Edens, which operates community centers with tenants such as J. Crew Mercantile, LaLa Girl Makeup Bar and I Love Juice Bar, said it’s important to schedule “a ton of events. They’re routine events such as yoga in the park, farmers’ markets and movies. Single large events don’t really drive and foster community.” Citing Arianna Huffington’s book “Thrive,” she said, “We continue to see a lot momentum in health and wellness and beauty. Consumers are embracing boutique fitness trends such as boxing and dancing.
“If you just look at pure data, there’s no question about the continued growth of e-commerce platforms, which I totally embrace as part of retail,” McLean said. “Our focus is on driving community spaces and community time together.”
Elise Jaffe, senior vice president of real estate at Dress Barn Inc., said omnichannel “is like a seismic shift. The majority of our stores are brick-and-mortar and every brand has the ability to allow consumers to buy online and we ship to them for free or ship to the store for free. You have to go to the store to try things on. About 60 percent of our customers have at least gone to the web site and looked around. They’ll come to the store and say, ‘Do you have this?’ Conversions are up.”
There was a consensus that 2016 has been a difficult year for the luxury business. Nor has it been easy for once high-flying retailers such as Gap Inc. and Abercrombie & Fitch Co. “It’s a very perilous time for the older brands that are struggling to connect with younger consumers,” said Garrick Brown, vice president of research for the Americas at Cushman & Wakefield. “Abercrombie and the Gap are being squeezed out of A malls. Gap is getting out of two malls in Cincinnati. Trophy landlords are holding their feet to the fire because they want to put quasi-entertainment concepts into the malls.”
“The strength of the dollar is having an effect on luxury tenants,” said Bradley Mendelson, partner and vice chairman of Colliers. “A number of tenants expanded heavily into Asia and China. Those consumers used to come to the U.S., but with the corruption crackdown in China and the Russian currency halving its value, they’re not [traveling]. We aren’t seeing any new luxury players.”
“This could be the worst year ever for department stores,” Mendelson said.
While American property owners are seeking foreign brands, one shopping district in the U.K. “wants more retailers to come from the U.S.,” said Jace Tyrrell, ceo of the New West End Co., a business improvement district in London. The area is on track to generate 11 billion pounds, or $14 billion, in annual turnover by 2020, Jace said, adding that he planned to meet with Mayor Bill De Blasio and members of the Times Square Business Improvement District. “We’re trying to have flagships here. We’re signing people to deliver their full U.K. offer. We have the largest Burberry store in the world on Regent Street, which has 99 percent of their sku’s.
“Apple and Google are investing in office operations in London,” Tyrrell said. “Two-thirds of our area is commercial office space, we have 200 galleries and Savile Row.”
“A lot of the headwinds we faced with Brexit and the national election haven’t really cleared the air the way people thought they would. Europe is still going through a crazy funk,” said Robert Cohen, vice chairman of RKF. “The business in Miami is difficult since South Americans and Latin Americans aren’t traveling. Mall traffic is down.”
In Manhattan, with the president-elect’s security detail cramping shoppers’ styles on Fifth Avenue from 54th to 57th Streets, Robin Abrams, vice chairman of The Lansco Corp., said, “We talked to a lot of tenants on Fifth Avenue about their ability to do business there. We talked to Bergdorf Goodman, Tiffany and Gucci. Right now, they say they’re not interested.
“We have 595 Madison Avenue, which was formerly occupied by Coach and is vacant. Prada on 57th Street is adjacent to Coach and the lease is up,” Abrams said. “Emporio Armani is also available and Mulberry is vacant. There are multiple opportunities for tenants who want more traffic. It’s a really opportunistic time.” Lisa Rosenthal, a broker at Lansco, added, “There’s a lot of large spaces on the market now that don’t divide well. Things that weren’t on the table before like short-term leases are being discussed.”
Dan Harroch, a broker at Thor Retail Advisors, leased a 2,000-square-foot space at 935 Madison Avenue to Golden Goose Deluxe Brand, which is scheduled to open in the second quarter of next year. “Madison Avenue in the 70s has evolved into a prime destination,” Harroch said. Golden Goose has a successful store in SoHo. “They did a deal on Melrose Avenue in L.A. and just opened their biggest store in the world in China.
“They wanted something a little more prestigious,” he added. “The 60s on Madison Avenue are tarnished. There’s so much available space. We started looking in the 70s, where you can get a 40 to 50 percent discount on the rent. Moynat and Jitrois are here. Stella McCartney is coming.”
Brookfield Place has seen an uptick in foot traffic due to a confluence of events such as the opening of Westfield World Trade Center and the impediment to shopping on Fifth Avenue in the vicinity of Trump Tower, where sidewalk barricades are part of security measures for President-elect Donald Trump.
“We opened a little earlier than in an ideal world,” Goldban said. “Luxury in general had a tough year. Since Saks Fifth Avenue and Westfield opened, luxury, month over month, keeps getting better.” The Saks men’s store is expected to open at Brookfield Place in the first quarter of 2017, Goldban said.
The pressure from online retailers also was a main topic at ICSC. The widely quoted 9.5 percent of overall retail sales attributed to e-commerce may actually be higher when broken down by category. “In terms of GAFO (general merchandise, apparel and accessories, furniture and other sales), which are all mall categories, e-commerce accounts for 29 percent of sales,” said Brown. “How far can it really go? I think it can get to the low 40s for certain categories.”
However, there was one brick-and-mortar cheerleader, Tom McGee, president and ceo of ICSC, who said he wanted to correct the perception that online sales are cannibalizing physical sales. “Not true at all,” he claimed. “Ninety-five percent of all shoppers will see omnichannel shopping this holiday season. On Black Friday, when 64 percent of consumers who bought online picked up their orders in stores, they picked up something else.”
Whatever the statistics, Amazon is trying to dislodge Macy’s as the top apparel seller, according to Brown, who added, “They expect to get to $17 billion and are on track to beat Macy’s. Amazon is creeping into the consumer’s life at every level.”
Amazon told property owners at ICSC that it plans to grow its three physical concepts, including lockers for order pickup, Amazon Go groceries, and bookstores, of which there are three units. A dozen more bookstores are set for 2017 and 12 to 15 are on tap for 2018. “Amazon has also been talking a lot about apparel,” said Acadia’s Conlon. “[Ceo] Jeff Bezos talks about apparel as a huge growth opportunity.”
“We’ve done a good job of aggregating retail properties in Georgetown,” Conlon said. “We met with Amazon and when we mentioned Georgetown, they pounced.”
Anyone worried that retail theater is dead need only have stopped at the booth of Triple Five, developer of American Dream in East Rutherford, N.J., which has reportedly been struggling to finance the final phase of the 2.9 million-square-foot project. The company, which operates the Mall of America and the Mall of West Edmonton, in April was to begin selling $1.5 billion in public bonds and hoped to get a $1.5 billion construction loan from J.P. Morgan and Deutsche Bank to pay for the center’s completion. Sensing that patience in the real estate leasing and retail communities was wearing thin with the long-delayed project, Triple Five brought a banker to its ICSC booth to reassure attendees that its loan was approved.
American Dream was first proposed as Xanadu in 2003 by other developers. Pacific Park, a 22-acre mixed-use project anchored by the Barclays Center in Brooklyn, began a decade ago under the name Atlantic Yards. A partnership between Forest City Ratner and Greenland USA is completing Pacific Park, which will include office space; residential units affordable to low-, moderate- and middle-income households, and 247,000 square feet of retail and commercial space at the buildings’ bases.
“The challenge is that there’s innovation in the food and beverage space, but we’re craving brands in the fashion and specialty store world,” said Peter Tomai, managing director, investments at Madison Marquette. “We’re seeing more interest from overseas. There are great brands out of Australia and Europe.”
Madison Marquette’s Wharf, a 1.9 million-square-foot mixed-use project in Washington, D.C.’s Southwest Waterfront area, will feature four piers, seven public parks, a water taxi to Georgetown and one of the oldest fish markets in the country, which will be refurbished as the rest of the project is built. The 160,000 square feet of retail space will be 60 percent food, beverage and entertainment. “It’s a little heavier mix than usual,” said Natasha Stancill of Madison Marquette’s marketing department. “The retail tenant universe is shrinking. We can’t rely on traditional canvassing anymore.”