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Transferring shopping centres into Tomorrow's World

Swindon

Stephan Austrup (Head of Retail, Germany) and Angela Goodings (Associate Director of Research) talk about the changing nature of the retail environment.

Anyone who has been working within the retail industry over the past few years, will have been inundated with numerous reports on the changing nature of our retail environment. This impacts all key stakeholders including consumer and changing consumer trends, identifying new channels of shopping and consumers’ enhanced expectations for retailing in a multi-channel environment. It applies to retailers who have embraced new technologies whether in-store or via their logistical operations to adapt to growing demand online. The changing nature of our retail environment is also applicable to the investment market and requires an adoption of retail asset management strategies.

One such structural change is the rate of urbanisation witnessed around the world. By 2030, it is expected that almost two-thirds of the world’s population will reside in cities. The picture varies markedly at a regional level; in developed regions, where urbanisation is not a new phenomenon, the rate will be much slower, albeit positive in most cases. Opportunities for retail investors and developers exist to anticipate and satisfy the strong demand from retailers seeking representation in large cities and metropolitan regions; demand for modern retail space in the fastest growing cities is likely to be fierce. When analysing retail investment strategies ‘location, location, location’ remains a fundamental cornerstone which has historically focussed on the catchment’s demographics, available retail spend and competition. All of these factors will remain relevant in researching future shopping centre investments, however we should no longer analyse shopping centres in isolation, but how they sit in a wider city framework. Given the continued rate of urbanisation, city dwellers look to work, live, shop, eat and play within one environment, and each component needs to work in collaboration with each other. Therefore future shopping centres will involve more mixed-use development.

Ageing demographics is another megatrend which we believe will have a major impact on retail real estate in the future. An unprecedented and widespread ageing of population is taking place globally; the proportion of elderly (those aged over 64) is expected to increase by 50%, from 8% of total population in 2010, to 12% in 2030. Despite the concern of slower growth caused by ageing, the elderly population in fact represents a significant spending group. Retailers and shopping centre operators should take a proactive approach in meeting the expectations of this group. Generation X will become tomorrow’s ‘elderly’, with very different consumption patterns to today’s elderly.

The importance of the ‘silver dollar’ is well-versed, but so is that of the millennials (people born between 1980 -2000) who are considered one of the largest generations in history and are about to move into their prime spending years. These groups will have very different consumer needs, and whilst this demographic megatrend is influencing real estate on a global scale, we are also mindful that their impact is local in nature. Shopping centre asset managers need to understand their local catchments in order to deliver the best strategies for their key consumer groups.

Technology has revolutionised the retail industry over the past ten years, with multi-channel retailing now well established and effectively working in collaboration. Click and collect continues to gain market share and is often cited as the fastest growing channel in retail. Retail property plays a fundamental role in promoting its success and property investors/landlords work hard to improve click and collect facilities throughout their retail portfolios, examining whether this is best driven by retailers to enhance ‘up-selling’ or the creation of central hubs which effectively store and manage deliveries in a convenient manner.

Tomorrow’s world retail will focus on creating social environments within our shopping centres. Enhancing retail destinations has been a strategy among landlords to ensure our assets remain viable trading locations in the future, and to defend against online retail formats. We believe consumers now want more, whilst they continue to be attracted to retail destinations, they also want social connections and experiences within their physical environment. Creating social destinations should be high on the agenda as essentially creating a place that people are excited about and want to visit will benefit consumers, retailers and landlords.

What does this mean for investors and asset managers? Investors with a long-term approach have to capture the impacts of these megatrends on occupational demand and consumer behaviour to create sustainable real estate products. This does not mean investments can solely focus on prime locations in large cities; the function and future position of a retail asset in the wider urban network has to be evaluated and determined as part of the business plan. Therefore, regional centres can also provide interesting investment opportunities, when the property fulfils the demand of the catchment. Retail parks and hybrid malls will remain especially important in their role of serving local supply, and might be able to combine convenient shopping with a local distribution hub (of online ordered goods). While most real estate investment products still focus on silos of specific sectors, the interest on mixed-use properties will enhance, when smart cities of the future will require and create new types of assets that combine living, shopping, eating out and entertainment.

The impact of these megatrends will also enhance the pressure on asset managers and developers alike to ‘future proof’ outdated centres. With a concept that reflects the impacts on customer expectations and tenant requirements, the refurbishment of an established retail destination offers the opportunity to generate value in the second life cycle of an asset.

In conclusion, whilst structural trends will continue to alter our retail and real estate landscape – it is important to ‘marry’ global demographic trends with the localised nature of shopping centres. “One size does not fit all”, and retailers, landlords and investors who are able to deliver top-down strategies which defend or deliver on megatrends whilst understanding local market dynamics will remain successful into the future.

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.

Stephan Austrup

Stephan Austrup

Head of Retail, Germany

Stephan's biography