Josh Williams, senior vice president and chief investment officer of Cullinan Properties’ Houston office, has been closely monitoring brick-and-mortar leasing, development and sales activity since the start of our nationwide exit from the pandemic. Below are the trends he sees and where he thinks this market is heading.
Retail Overview: What do you think is the general trend in commercial real estate at the moment?
Williams: As we emerge from the pandemic, we are seeing a wide variety of retail assets return to pre-2020 levels of activity, all with one overriding trait: quality. Quality retail assets – whether grocery stores, lifestyle centers, mixed-use or even dominant – are performing well from an operational and investment perspective.
Tenant demand is also strong with 2021 openings outpacing closings 2:1. This is driving growth in rental rates, occupancy and investor interest. Beyond quality Class A and B assets, however, retail inventory continues to require significant downsizing.
Retail Overview: How would you define the retail investing market right now? What are investors looking for?
Williams: Investment activity is tracking performance closely, with renewed interest in many types of shopping centres. Multi-family, industrial and storage investments have saturated the market in recent years, but we have seen renewed interest in commercial properties. Investors and lenders seek higher yields and find attractive returns in retail assets, especially those with a long-term redevelopment or repositioning component. This is one of the main asset types we target here at Cullinan Properties. We will use our retail expertise and experienced development platform to redesign the asset, generating attractive returns for our investors.
Retail Overview: What about lifestyle and mixed centres? How do they work?
Williams: While many of these properties have struggled the most during the pandemic, lifestyle and mixed-use assets have emerged strong on both the consumer and tenant side. Business is returning to normal and customer demand for experiential mixed-use retail continues to grow. Lifestyle tenants increased store openings, including digital native brands that use physical stores to connect with their customers.
Retail Overview: What strategies have been successful in attracting buyers and renters to mixed-use properties, in particular?
Williams: Mixed-use real estate has a built-in customer base of office tenants, residents, hotel guests, and more that drive traffic, but the onsite customer experience is most critical. Placemaking efforts, strong programming, and the pedestrian experience are key components of any successful mixed-use development. This helps draw consumers to the site, increases dwell times, and ultimately increases tenant sales. However, the layouts of the premises and tenant lifestyles are expensive, so investors see much of their return on the premium from office and multi-family rents when adjacent to these mixed-use retail businesses. .
— Compiled by Nellie Day. This article is published as part of Shopping Center Business’ Retail Insight series. Click here to subscribe to the Retail Insight newsletter, a four-part newsletter series, followed by video interviews delivered to your inbox in May/June.