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The Future of Shopping Centres

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At our event hosted in New York on 15 September 2015, a variety of retail experts offered up a compelling argument for the future of retail and the importance of the store.

The event, hosted by TH Real Estate, TIAA-CREF and Retail Property Analyst, at the TIAA-CREF real estate HQ in New York, featured presentations from Hana Ben-Shabat, Partner at AT Kearney, Alice Breheny, Global Co-Head of Research at TH Real Estate, and John Ragland, Senior Director and Head of Retail Asset Management for TIAA-CREF Global Real Estate. The presenters were then joined by panellists Minda Gralnek, PepsiCo’s Vice President, Global Snacks Design, Ken Seiff, Co-Founder of New York based seed stage venture Fund – Beanstalk, Richard Hodos, Vice Chairman for CBRE’s New York Tri-State Region Retail Services Team, and Michael Fisk, Senior Director and Manager of the US Acquisitions team for TIAA-CREF Global Real Estate.

John Ragland looked back to a panel he participated in, in 1991, to discuss the ‘Death of the Mall’. Almost 25 years on, far from its decrepit forecast, the shopping centre mall is a successful global phenomenon that is very much alive and kicking! Despite a tidal wave of change which has cemented ‘omni channel retailing’ as a common theme and past-time for consumers of all generations, far from the expected decline for retail physical spaces, retailers are increasingly recognising the importance of an accessible and high-quality physical space.

Hana Ben-Shabat pointed to a number of studies that ATKearney have carried out in recent years. Their analysis revealed that despite a constant continuum of ‘connected consumers’, there are actually more than 80 different ways in which consumer journeys can be categorized. The research reveals that, although consumers are increasingly using multichannel offerings, online pure–play retailers actually lose out, lacking the brand support that a physical store can offer. There is a clear benefit to ensure a true mergence between online and in store. Hana pointed to another piece of research, which highlighted that online sales are strongest for retailers in districts where the online shopper is within close proximity of the store, suggesting that, although the items may be bought online, consumers are first visiting the stores to view the items before they buy.

Referring back to these studies, John Ragland pointed out that we’ve seen a number of pure-play catalogue retailers such as J.Crew, and online players including Apple, responding to consumer patterns with multi-store roll outs. Apple is one retailer which clearly recognises the importance of the ‘show room’ store, which focuses on experience and brand equity. This view was endorsed by Richard Hodos, who cited a number of recent examples where prime brands had taken significant space in Manhattan that would serve more as a brand show room, rather than an income-producing space by sq ft. Alice Breheny pointed out that perhaps it would be better to measure value in ‘smiles by sq ft’ as opposed to ‘sales per sq ft’, as we move forward into this new age of retail.

Although the store remains important, John did labour the fact that landlords cannot become complacent. The most successful stores will be those where value can be added via modern fit-out, refurbs and extensions, to cater to modern retailer needs. He pointed to a couple of examples in the TIAA-CREF portfolio, where asset management initiatives had considerably enhanced rental income.

Next, Alice Breheny highlighted the importance of ‘people’ in the equation, highlighting a number of demographic statistics that were enough to get the audience thinking about future repercussions. For example, the fact that over 80s will increase from 4% to 10% of the population by 2050 will significantly affect the way real estate may need to cater for older generations going forward. As she highlighted, an ageing population does not have to be a bad thing; rather it can hugely boost consumer consumption and demand for real estate. Her presentation illustrated that shopping centres need to respond to changing demographic trends, whilst location was becoming an ever important factor. Alice pointed to the ‘cities’ approach that TH Real Estate applies to real estate investing in Europe, on the basis that the population is increasingly shifting towards cities, with many winning cities significantly outperforming their national average on a number of factors, including real estate demand and value.

On a similar note, John pointed to the importance of ‘Super Zip Codes’ in North America, those locations which, from a retail perspective, have significantly outperformed less prosperous areas, per NCREIF returns, over the past 20 years.

Moving on to the panel discussion, Ken Seiff argued that a huge unknown is that we do not yet know what is to come from Generation millennials who, he predicts, will demand their own set of brands and change of world order. Minda Gralnek, supported this notion, citing huge change in marketing strategies over recent years, as brands adapt to younger, more discerning generations.

Michael Fisk’s closing remarks reinforced his position that retail is where the money is, and that investors will do well to hold on to prime stock because, should they sell it, they may find it increasingly difficult to access new stock to get back into the game!

Disclaimer
Issued by Henderson Real Estate Asset Management Limited, 201 Bishopsgate, EC2M 3BN. Authorised and regulated by the Financial Conduct Authority. TH Real Estate is a name under which Henderson Real Estate Asset Management Limited provides investment products and services.

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