Retailers Will Employ Mix of Offense and Defense for 2022 Expansions

We have all heard about the supposed demise of brick-and-mortar retail: “The twin effects of e-commerce growth and pandemic shutdowns are too much to overcome. Shopping has changed forever.”

Not so fast.

While brick-and-mortar retail has been forced to adapt and reinvent itself, the reports of its death have been greatly exaggerated.

This past year saw more store openings than closings and the retail market recorded nearly 100 million square feet of positive net absorption.¹ Retail properties of all types, from strip malls to open-air shopping centers, have seen a flurry of activity. Even enclosed malls, arguably the most embattled sector, have seen renewed interest from retailers.

One of the main drivers of this activity is a new approach to leases. After the uncertainty of shutdowns, retailers and owners are looking at leases and determining how to limit exposure while still generating activity at retail centers. One result has been shorter lease terms. Retailers want more flexibility, resisting the traditional 10-year term in favor of a term closer to three-to-five years. Owners want new, high-profile tenants. Shorter lease terms have been a nice compromise that has generated activity for owners while limiting exposure for retailers.

Timing is another factor when considering an expansion. Retailers, especially international operators, are surveying the landscape and determining that now may be a good time to expand. Retail has weathered the most recent waves of pandemic-induced restrictions, and there are opportunities for prime locations in many major markets. However, as activity continues to increase, securing the right location becomes much more competitive.

With these factors in mind, CBRE expects to see more retailers expanding in 2022. In most cases, these won’t be the expansions the retail sector used to see—retailers blanketing markets with dozens of new stores—but rather a more methodical approach, driven by analytics and portfolio optimization.

Here are three considerations retailers will have to keep in mind when looking to expand this year:

1. Protect your exposure. Brick-and-mortar retail represents an amazing opportunity for revenue expansion, particularly for companies that have a strong online brand but little physical presence. However, a measured, data-driven approach that mitigates risk and overexposure is the name of the game. Instead of 50 new stores, retailers will be looking at 15-20 high-profile sites that target their shopper demographic. Instead of a long-term lease, they will look to start on a shorter lease term to test the waters. It’s this mix of offense and defense that will create a successful strategy.
2. Consider what brands will support your growth. Co-tenancy can be vital to a retailer’s success. Many retailers want to be located in centers with major traffic-drivers, such as grocery stores or top-tier brand names. Other retailers want to lease alongside brands that drive synergies, such as fitness centers and athletic wear firms. In many cases, retailers can have clauses that assure a preferred co-tenant will be in place.
3. Find the right partner. Retailers and landlords need to approach the process as partners, rather than adversaries. Everyone wants to be successful and those that work together will have a better chance to drive results that benefit all.

¹ Source: CBRE Research 2022