Lifestyle centers have become one of the most undervalued retail asset classes
Lifestyle centers may be one of the most undervalued retail asset classes today. According to JLL, increased foot traffic, falling vacant homes coupled with rising rental rates and large-scale retail expansion plans are building confidence and signaling that lifestyle centers will come back strongly. .
While small retail stores anchored in grocery stores have recently dominated investment demand, the increase in vaccinations and reopening is motivating buyers – and investors – to return to other retail segments.
The Lifestyle Centers have been designed as a modern interpretation of the shopping center and are known for their outdoor spaces and the incorporation of other uses such as offices, multi-units and reception areas. They also typically include upscale national chains and specialty retail outlets with dining and entertainment options.
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âRental demand from new tenants in the market, such as digital native brands, as well as traditional mall retailers looking for a non-mall growth strategy, are accelerating the attractiveness of this class of businesses. assets for consumers, âsaid Chris Angelone, Senior Managing Director, JLL’s Retail Co-Leader in Capital Markets. âInvestors are taking note and will be looking for performance and growth potential. Within two to four years, high performing lifestyle centers will return to their trophy place, the core asset class among investors. “
Matt Hammond, Senior Vice President / Partner, Coreland Companies, told GlobeSt: âIn this post-pandemic era, retail is all about comfortable outdoor spaces. Customers are looking for restaurants with plenty of outdoor seating, amenities, and stores that don’t mean stepping into a closed mall. Shopping malls anchored in grocery stores have driven demand from tenants and investors over the past year and a half.
âIt is an extremely competitive market, while the re-emerging centers of life present growth opportunities. Amazon and GrubHub come in handy, but there comes a time when customers are ready to enjoy the retail or restaurant experiences again. “
The owners reinvest to improve the common spaces
Patrick Toomey, Executive Director, Institutional Property Advisors (IPA), told GlobeSt: âShopping center owners who have reinvested in improving common spaces – especially by providing gathering places and open spaces – will have more of long-term success.
âWe are social beings and these centers that offer the possibility of safe mingling will continue to gain in popularity. Retailer sales at these locations will, of course, be the ultimate litmus test, but the data showing consumers’ travel habits bodes well. Retail in general is coming back as an acceptable risk-adjusted return asset, as investors find that retail has not failed dramatically as feared at the start of the COVID pandemic.
âPlus: We found that after the pandemic, many consumers engage in ‘revenge spending’ that spurs sales and foot traffic. The most successful properties in the lifestyle category do a great job of creating Instagram-worthy places and moments for their consumers.
Phil Purdom, Southeast Real Estate Manager for Hines, says âLifestyle now all works together, retail, residential and office are in sync. Millennials want to live, work, play, and even walk their dogs in one place. “
Lawrence “Larry” Taylor, founder and president of Christina, told GlobeSt: “While not a new concept, lifestyle centers are reborn in the post-COVID era given the ever-changing demands of today’s consumers, which are largely propelled by affordability and convenience.
âMany lifestyle centers offer a bespoke mix of retailers and restaurants in a more intimate, community-oriented, pedestrian-friendly setting. Consumers are drawn to experiential shopping and dining destinations, and as a result, lifestyle centers have proven to be more adaptable, providing organized and personalized services that traditional malls cannot.
Heavy occupation in New Towne centers
Monica Klawuhn, vice president of brokerage leasing firm Zuckerman Co., leads leasing efforts on a range of mixed-use projects in the Southeast, one being Mount Pleasant Towne Center, located just outside of Charleston in Mount Pleasant, SC The 510,000-square-foot outdoor lifestyle development is anchored by Belk and Regal Cinemas and notable national tenants include Lululemon and Peloton.
The Towne Center has performed well in the midst of the global pandemic, with the occupancy rate remaining stable and the vacancy rate never exceeding 5%. As revenge spending and pent-up demand increase, Klawuhn sees continued success for high-density mixed-use destinations.
It predicts future shopping center trends involving the rise of entertainment districts, digital native brands opening physical stores, experiential retail, shopping center redevelopments, the decline of e-commerce, drive-thru and walk-in windows as well as dedicated parking spaces for carpooling, in-store returns and take-out.
Compared to malls, lifestyle centers have the lowest average vacancy rate, 6.5% versus 6.8% for super regional malls and 10% for regional malls. According to JLL Research, in the second quarter of 2021, lifestyle centers receive rents 46% higher than regional malls and 11.5% higher than super regional malls.