May 30, 2019
While the news has drawn much attention to struggling retailers lately, the annual ICSC RECon in Las Vegas was bustling with deals being struck and relationships taking root. The nation’s prevailing retail convention is filled each year with discussions on leasing activity, investor interest and innovation, but this year, five new topics emerged as major points of conversation.
Mixed-use development. Retail, and real estate in general, is moving toward a more integrated structure that houses multiple uses in a single project. While many dense, urban cities, like New York and San Francisco, have for decades used ground-floor retail with office or residential units above, this arrangement is becoming mainstream in more sprawling cities and secondary markets. For retailers, this could mean steady foot traffic from the office or residences but with a compromise on smaller stores, shared parking garages, and limited signage opportunities.
Opportunity Zones. These areas are seeing red-hot demand from investors because of the major tax advantages they offer. Real estate investors that take a capital gain on any investment can place those funds into an Opportunity Zone investment, thereby deferring the taxes on the original capital gain until Dec. 21, 2026. If the investment is held for more than 10 years, the investor pays no taxes on any capital gains garnered through the fund. While the investment criteria are still being clarified, investors are nonetheless aggressively pursuing these opportunities.
Sustainability. Today’s consumers place their loyalty with brands that support causes and values their customers care about. One of those areas is environmentally friendly and sustainable practices. Real estate, as one of the largest sources of energy consumption, is a prime area for retailers to focus on sustainability, through measures such as solar panels. Retailers are also focused on improving sustainable practices throughout their supply chains, packaging materials, and merchandise sourcing and manufacturing. Plus, some sustainable efforts come with the benefit of tax exemptions or write-offs.
Medical net lease. As the retail industry is evolving due to changing consumer demand and e-commerce, one area of growing interest is net-leased properties with medical or healthcare tenants. Investors have shown an increased appetite for the relative stability of medical users.
Industrial space. Online sales continue to account for a larger portion of all retail sales. Big-box retailers have on-site storage space that can be repurposed for e-commerce fulfillment, but smaller retailers are challenged to operate a sophisticated omnichannel strategy from a Main Street storefront. This has prompted even mid-size and small retailers to explore downsizing storefronts while leasing industrial space to support e-commerce sales. Historically, this strategy has been reserved for large retailers with high sales volumes.
As Vice President, Rick Rizzuto represents both property owners and tenants in the retail sector. He advises tenants on real estate strategy for local, regional and national store and restaurant concepts.
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