Commercial real estate industry insights.

The Evolution of Retail Real Estate

by | Jul 22, 2020

Concerns over the coronavirus are changing retail operations and configurations, and some of those changes may be here to stay.

Lockdown orders were prolonged enough that risk-averse behaviors such as shopping online and dining at home became widespread and habitual, making them more likely to persist. As officials continue to promote social distancing, retailers have tried to compensate for decreased in-store traffic and to capitalize on online shopping behaviors by stepping up “click and collect” services. “Curbside pickup could become a mainstay option” for both restaurants and retail outlets, according to Forbes, and some stores “could even move to a drive-through model” for pickup. Indeed, Walgreens announced that it will convert several thousand pharmacy drive-through windows for grocery pickup, and Kroger debuted its first pick-up only store for click-and-collect orders.

Store Footprints

In a post-pandemic world, store configurations and footprints may look different in other ways, as well. Contactless payments and checkout-free stores may become the norm. The technology already exists to allow shoppers to scan and pay for their groceries without touchscreens or checkout aisles.

The boom in online shopping hastens the need for last-mile delivery options, with efficient stock picking and shorter routes. Buy-online-pickup-in-store (BOPIS) capabilities preceded the pandemic, bringing micro-warehousing space and robotics automation technology to store backrooms.

For retailers in the nonessential category, Forbes envisions that front-of-store space will be designed more like a showroom where people explore the shop “like a museum” and “buy large products without having to carry them around.” Restocking displays would not be required, as shoppers signal a staff member to collect and wrap “fresh versions” of desired items “backstage.” Or, shoppers could have desired items shipped to their homes, eliminating the need for in-store stocking altogether.

Malls in the COVID-19 Era

Before the pandemic, enclosed malls were already in transition, with many being repurposed to house medical space, fitness centers, entertainment venues and distribution centers for online retailers. Enclosed malls that pack people together aren’t well-suited for some COVID-19 realities and adaptations; for example, most mall stores have no exterior access for curbside pickup.

Experiential retail venues, prior to the pandemic, were in some places providing new mall anchors in place of department stores. However, experiential retail isn’t necessarily conducive to social distancing.

Even before coronavirus, some traditionally mall-based retailers, including Macy’s, were signaling a shift to off-mall locations, piquing investor interest in strip malls. The Motley Fool advises investors to start shifting their focus to real estate investment trusts (REITs) with “a little more exposure to neighborhood shopping centers and a little less exposure to traditional malls.” Strip malls, according to the Motley Fool, puts retailers “closer to where (their target shopper) lives and works, where she does most of her errands … where she can pull right up and grab something.”

Restaurants and Roadways

Compliance with social distancing requirements requires space, and outdoor interaction lower the risk of COVID-19 transmission. Since restaurants and shops are sorely in need of business as certain states reopen, these establishments are spilling out onto sidewalks, streets and parking lots.

To accommodate outdoor dining and shopping, some towns have closed off main thoroughfares to vehicle traffic, turning those areas into pedestrian plazas. Madison, Wisconsin, announced its “Streatery” street closure program, which allows downtown eateries and shops to expand into the outdoors and take advantage of pedestrian traffic. New York’s “Open Streets” program blocks off certain roadways to cars so restaurants can expand their dining space and serve enough patrons to keep their doors open. Safety and financial considerations have prompted cities from coast to coast to block, narrow and repurpose streets, and though these measures are generally temporary, the Washington Post put forth that they “might have lasting impacts on some of urban America’s most important, and contested, real estate”—namely public roadways. If open street programs outlast the coronavirus, they might create space and demand for pop-up retail concepts. Already, a Fortune magazine headline declared that pop-up retail “was made for the pandemic.”

It will be interesting to see how mom-and-pop shops and restaurants fare in the coming years. The Atlantic reports that circumstances favor the expansion of big companies and the proliferation of chains. On the other hand, the pandemic has sparked a movement to support local businesses.

Remote Working and Retail

Working from home is a “new normal” that may outlast the pandemic and ultimately affect retail. The current retail landscape reflects previous traffic patterns, “and so the structure of retail, the locations that retailers have chosen, the access and egress of those locations are all sort of predicated on this flood of consumers to work each day,” which has diminished, according to Boston’s National Public Radio station.

Store locations and formats may change over time, and essential retailers may function more like “automated vending machines” placed for the convenience of folks who may be traveling less by car.

In these uncertain times, one thing is clear—retail operations and formatting have changed, and in some cases we’re past the point of turning back. Already, we’re seeing glimpses of what the future will hold.