Bricks and Mortar Retail—Not Dead, but Challenged

John Jordan | June 1, 2017

WHITE PLAINS—Reports of the demise of bricks and mortar retail are premature, so says a panel of retail executives that appeared at the June 1st meeting of the Hudson Gateway Association of Realtors’ Commercial Investment Division.

The panel participants also agreed that while bricks and mortar retail faces many challenges today and in the future, conventional retail locations actually are integral to many retailers’ e-commerce operations. The panel, moderated by CID President John Barrett, consisted of: Steve Sayers, general manager, The Westchester; Peter Kempner, principal, The Kempner Corp. of White Plains; Jonathan Gordon president and CEO, Admiral Real Estate of Bronxville; Scott Auster, managing director, Grid Properties of New York City and James Aries, senior vice president and director of acquisitions for Urstadt Biddle Properties Inc. of Greenwich, CT.

Aries said there has been a healthy streamlining of the weaker operations in the retail sector and while the Internet has a large impact on the industry, he said Urstadt Biddle Properties, which specializes in grocery anchored-shopping centers, considers the Internet and e-commerce as strictly another large retailer to contend with. He related that Urstadt’s stock fell several points when Sears announced its store closures, but knowledgeable investors realized that the firm has no exposure since Sears is not a tenant at any of its properties.

He added that due to the poor perception of the retail market at the moment many of its competitors are “static or sitting on the sidelines. We are looking at that as an opportunity.”

Auster updated the CID gathering on the company’s proposed project in White Plains. The firm plans to develop a 230,000-square-foot, two-level retail development on a five-acre site on East Post Road. He told Real Estate In-Depth that the project, estimated at approximately $150 million, secured site plan approval from the City of White Plains earlier this year. The firm has hired JLL as its leasing agent and is now looking to secure anchor tenants for the project that will also include a 750-space parking garage. He said the firm is hopeful to secure leasing commitments for at least 50% of the space so that it can begin construction sometime in 2018. He said the firm currently has approximately 600,000 square feet of new development in the pipeline. The White Plains project is the first development for the firm outside of New York City.

Admiral Realty’s Gordon stressed Westchester’s strong demographics, such as Westchester’s average household income of $135,000 for example, as a definite key to attracting new tenants to the region. Commenting on the overall retail sector, Gordon related, “Retail is definitely in a state of flux… It is in a state of change.” Emerging trends include the growth of the omni channel or multi-channel concept that provides customers with seamless bricks and mortar and Internet. In addition, Internet-proof type retailers such as gyms, food and entertainment-oriented retailers, are also growing at the moment.

He said that municipalities should change their zoning codes to make it easier for these type of retailers to lease or own space, which he related would “prime the pump” and facilitate the future success of those type of retail operators.

Kempner said his firm, which owns retail properties in the Northeast and in the New York metro area, is currently in an “acquisition mode.” He noted that properties that were on the market a year ago or two years ago priced at a cap rate of 6.0 or 6.25, are now on the market for 7.0 to 7.5. He added that some of those properties therefore will likely trade at a cap rate of 8.0 or more.

While he noted that there are challenges facing the retail sector, he said that Internet sales account for 10% of all retail sales and that bricks and mortar supports 30% of those Internet sales.

The challenges facing retail property owners include expected higher levels of e-commerce, continued retail consolidation and stagnant or declining rental rates.

“It is up to us as the developers, the landlords and tenants to provide a proper retail environment for millennials,” Kempner said. “You have to give people a reason to show up and we have to continue to move forward and renovate the properties, provide good tenant installations and an experiential retail environment.”

The Westchester mall’s Sayers said, “Retail is not dead, but it is certainly changing.” He touted “The Westchester Savor”, a dining area on the fourth level of the mall that includes a number of specialty eateries, al fresco patio seating, a children’s play area and a high-tech media lounge.

Auster said that some sectors of retail are struggling, such as large enclosed malls for example. He also said that “Concessions are a realty that is not going away.”

However, he said that due to the strength of the New York area real estate market, while retailers may downsize and the number of new retailers may be lower in the years to come, “I would place my bet on those stores being in New York first and closing here last before anyplace else in the country.”

The sponsors of the event were Carr Workplaces and Trustco Bank.

The next meeting of the Commercial Investment Division will be held on Thursday, June 22nd at the HGAR offices in White Plans. The session will begin at 8:30 a.m. and will feature Seth Pinsky, executive vice president at RXR Realty, who will discuss the firm’s major development projects in New Rochelle and Yonkers as well as multifamily sector growth in the New York City suburbs. Click Here for Details

At 10:30 a.m. Anthony R. Davidson, Ph.D., MBA and Dean of Fordham University, School of Professional and Continuing Studies, will discuss a new partnership between the Fordham Real Estate Institute and the Hudson Gateway Association of Realtors to offer professional and real estate designation programs to the HGAR membership. Click Here for Details.

John Jordan
Editor, Real Estate In-Depth