If today’s retailers were given a wish list for their real estate and construction requirements, it would heavily resemble the thoughts shared from Bill Castagna of Five Below, Amro Fadel of Burlington Stores and Eric Suissa of Starbucks during the “Retailer Perspectives” panel at ICSC Philadelphia.
Looking ahead to 2024, the speakers acknowledged the massive influx of commercial and residential project applications for approvals within municipalities causing project delays. This time lost has been affecting costs and site selection across the board. Even while tools like Placer AI and data aggregators can be a fantastic benefit, there is no replacement for a multi-dimensional perspective shaped by a strong co-tenant strategy.
Solid Co-Tenant Considerations and Precautions
In this approach to site selection, tenants work together to create a mutually beneficial environment that attracts customers and contributes to the success of all retailers involved. Starbucks mentioned they do well with QSRs adjacent to their retail footprint. Also, Burlington shared that their customers enjoy a Five Below location in the same center. This idea allows multiple tenants to leverage their collective presence to create a more vibrant and attractive shopping environment.
As a protection, sometimes smaller retailers relying on an anchor for foot traffic can pursue a co-tenancy clause in their lease. This language allows a tenant to request some sort of relief if total occupancy drops below a certain threshold. The relief typically takes the form of reduced rent until such time as the space is filled. However, the existence of co-tenancy clauses in retail leases raises the risk profile of a transaction for the property owner because one tenant leaving can result in other tenants receiving rent reductions.
The Importance of Flexibility
Flexibility is becoming an increasingly important aspect of a retailer’s real estate strategy. The ever-changing retail landscape requires agility and adaptability. Retailers need to be able to adjust their physical footprint, store formats, and locations to align with market trends and consumer preferences. This often means negotiating flexible lease terms or seeking properties with versatile layouts that can be easily modified. Flexibility allows retailers to stay ahead of the curve, especially while shifting retail uses. For example, banks are easily converted to QSRs, Taco Bell can be easily renovated into a McDonalds, and retail can be shifted to self storage. Office doesn’t often have the same luxury. This is recognized from an investment perspective, especially as converting retail has 40% less costs than buying new. During the panel, Burlington shared their goal of converting 60 Bed Bath and Beyond locations into new locations as a testament to the value of this strategy.
While this is only a brief glimpse of the dialogue, it’s important to note the perspective of those sitting across the conference room table and understand the full picture of a brand’s real estate presence. For retailers that cater to evolving consumers and demographic drivers, it’s critical to involve as much data in development decisions as possible.