At the end of last year, Colliers released a detailed report on the state of America’s retail real estate (click for PDF), including market-by-market data and predictions for the growth and evolution of the sector. Naturally, a great deal of the study looks at the relationship between brick-and-mortar and online retail, and how the latter will influence the market for traditional retail properties. Colliers includes a list of estimated store openings, organized by company, for retailers with the highest number of openings in 2013.
Here are a few of the stores–all restaurants of one kind or another–expected to open new locations this year:
- Buffalo Wild Wings (105)
- Chipotle (165-180)
- Dunkin’ Donuts (330-360)
- McDonald’s (220)
- Qdoba (70-85)
- Panera (115-125)
- Starbucks (300)
- Pizza Hut (150)
All of these numbers are Colliers’ estimates. And yes, Yum! brands’ (NYSE: YUM) Pizza Hut does indeed have 150 potential openings for the year. These brands, along with dollar stores and drug stores, are among North America’s fastest-growing retailers. This, I suspect, tells us a lot about where the retail real estate sector is headed.
Like office real estate, retail has seen an enormous amount of change as a result of new technology. Workers’ increased mobility–via laptops, tablets, and Wi-Fi–has drastically diminished office real estate demand in most major markets, since companies tend to require less office space. Likewise, the speed, convenience, and lower overhead of e-commerce has made many retailers obsolete. Both sectors, and their real estate, have been forced to adapt.
One solution for the retail sector is the idea of filling large shopping center vacancies with outpatient medical centers. This solution makes a lot of sense, since Amazon.com’s online emergency room is still in beta (hard to cure disease remotely, although I suppose you could get a medical textbook for your Kindle).
Ultimately, whether we’re talking about community shopping centers or power centers (maybe even, to some extent, malls), operators must reevaluate what constitutes an “anchor” store. These days, it may not be a Best Buy, Barnes & Noble, or Sears. Restaurants–whether fast food or casual dining–may soon gain greater prominence among retail operators.
Consider In-N-Out Burger. If you haven’t heard of it, you’re not from the West Coast.
The restaurant chain was founded in California in the ’40s and has slowly but steadily expanded to markets throughout California and the Southwest. The chain is incredibly popular and, according to a Bloomberg article, extremely efficient. The family-owned business has made headlines for a number of reasons, including the wealth of its 30-year-old president, Lynsi Torres, as well as the chain’s subtler-than-Chick-fil-A Christianity (e.g. check out the Bible verse printed on the bottom of one of their cups). Bloomberg estimates the company’s value is about $1.1 billion.
Consider the popularity of shopping centers’ pad sites. These small, outlying stores are desirable for their roadside visibility and convenience (they’re ideal for both restaurants and bank branches). Still, they exist as something of an afterthought compared to the rest of the shopping center. Strangely, these businesses sometimes offer the most stability of any of the property’s tenants, and might serve as the best anchors of all. As a general rule, restaurants aren’t going anywhere. People need to eat.
The problem with this suggestion, I concede, is the volume of retail inventory already waiting to be leased. Since stores like In-N-Out Burger or one of those Taco Bell/Pizza Hut/KFC/Red Lobster hybrids tend to require a drive through (I was joking about the Red Lobster part), it would be difficult to put fast food anywhere but in a free-standing building, pad site or otherwise.
I can’t think of a convenient solution to this problem. Still, it’s worth looking to the restaurant industry as an increasingly essential component of retail real estate. Granted, a Starbucks or Subway won’t offer nearly as much leasing income as a Best Buy. For retail, a smaller footprint is becoming the new normal.
Even so, as retail investors and operators struggle to do “more with less”–in terms of space demands–it’s worth remembering that even small tenants can bring in large crowds. This can help attract larger tenants.