Retail developers who gathered at the 2018 ULI Florida Summit talked about what is working and what isn’t, as they shift their focus to more entertainment and dining amenities combined with mixed use from the traditional strip centers of the recent past.
“Over the period of the last 30 years, retail has changed quite a bit,” says Tom Meredith, vice president and market officer at Regency Centers in Boca Raton, Florida. “Over the last five years, in particular, retail is moving toward entertaining versus just providing a service.”
Meredith’s sentiments were echoed by a number of Florida developers at a recent panel during ULI’s Florida Summit, held at the Ritz-Carlton in Naples in early June. Meredith was joined by Peter Flint, senior director at Kimco, and Manuel Martin, head of southeast United States at TH Real Estate, along with Tarik Bateh, vice president of capital markets at JLL, who moderated the discussion.
Flint, in particular, was quick to note that today’s retail landscape requires developers to consider how to keep visitors on the grounds for a variety of activities, and not just shopping. His latest project, Dania Pointe, a sprawling 102-acre (41 ha) development composed of residential, hotel, office, and mixed-use retail, was designed to keep guests engaged with the space. From adding park benches to family-friendly splash parks and a large entertainment plaza that can support concerts and major sporting event screenings, Kimco designed this billion-dollar project to support 24-hour activity.
According to Flint, Kimco’s decision to include multifamily, condominium, and office units in this development is an ingredient that is hardly a secret among Florida developers. “You need to have your restaurants and your retail store supported by local people,” says Flint. Offering a variety of choices—from cheap and casual to high-end for the executive set—is crucial to retaining an engaged public.
Not only should the retail experience offer a variety of options, it should also feel authentic, notes Meredith. “You want to have people say, ‘That’s my plaza, that’s where I go,’” he says. “The community has to buy in, and make that center be the place they go to for entertainment and for a doctor’s appointment. And you need to provide the experience that gets them coming back.”
For investors like Martin’s TH Real Estate, a novel retail concept is a must if you’re expecting to land support from institutional sources. “When it comes to courting an investor, we’re looking for a new normal,” says Martin. “People are looking for local and artisanal, and your development can’t rely on national chains if you’re looking for our attention.”
Of course, striking a balance between brand-name national chains like Starbucks and buzzy local restaurants and retailers requires a strategic approach. “It’s a very delicate balance because you want to have a national chain so you can finance the project while ensuring your development has something that people will easily identify,” says Meredith. “But you also need to have enough of the local retailer and local restaurants so that people can call it their own. It’s maybe a 60/40 or 70/30 split.”
While many big-box retail stores are meeting their demise, the panelists stressed that developers should get creative when it comes to redeveloping these properties. In fact, Flint suggests that an out-of-commission retail center is exactly the kind of investment Kimco seeks out on a regular basis. “Boxes vanish and there’s no replacement for them; you take that chunk of real estate that wasn’t performing and you make use of it because it’s still valuable land,” he says.
Panelists noted that the demise of big-box shops has made room for retail tenants that were once taboo. In the past, grocers like Publix—which owns roughly 43 percent of the market share among food distributors—were hesitant to approve a gym or fitness center in the same development. Today, they’re a welcome addition. What’s more, many emerging box retailers—say, Whole Foods, for example, which is adapting a third of their store for delivery service or fast pick-up–are adapting their business to cater to shifting trends. “Retailers have more analytics than ever,” says Meredith, “and they roll out concepts with a much more targeted approach.”
As an asset, retail remains desirable to investors so long as the property can produce the appropriate returns—and this is usually achieved when developers set their sights on older retail developments that need a refresh. According to Martin, TH Real Estate is focused on “finding opportunities with significant discounts on location, assets, and REIT possibilities.” Likewise, Flint notes that the purchase side of retail development remains relatively slow, as cap rates have slowly crept up. Nonetheless, “we’re still getting buyers because people are worried about the interest rate going up,” he says.
As a whole, retail development in Florida remains desirable when equipped with residential and office components to drive continued engagement. Asked how to evaluate the health of a potential development, panelists widely agreed with Meredith, who states: “Always revert back to what is quality real estate. Even if demographics change, you can always multipurpose it.”