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You are here: Home / Features / Building Nevada / Retail

RetailFocus on the Experience

November 1, 2019 By John Seelmeyer Leave a Comment

Once upon a time — say, 10 years ago — retail was all about selling stuff. But as the business of selling stuff continues to move online, the word of the moment among retailers and shopping center owners is “experience.”

“Experience is a big part of what retailers are looking to incorporate now, whether this is in the form of innovative interiors, games or mobile pickup,” says Jason Otter, a director with Logic Commercial Real Estate. “Landlords and tenants are getting smarter to attract that consumer dollar.”

Jason Otter, Logic Commercial Real Estate | Photo by Victor Bernard and Jerry Gallegos

The biggest reason for the emphasis on experiences, of course, is that experiences can’t be replicated by the online retailers that sell merchandise to consumers sitting in their living rooms. The biggest upshot of the emphasis on retail experiences has been a boom in restaurant openings across the state.

In Las Vegas, Otter says restaurant spaces generally are snapped up as quickly as they hit the market. In Reno and Sparks, strong demand for existing restaurant space is so strong it’s pushing rents up, says Gary Tremaine, a broker specializing in retail space with Dickson Commercial Group.

“Any type of food use is hot right now — anything with a greaser interceptor or a hood,” he says.

The reason: Installation of a grease interceptor and a hood can add $80,000 to $100,000 to the cost of opening a new restaurant.

But the experience provided by restaurants is changing with the rapid rise in takeout and delivery services, and that’s changing the type of spaces their owners hope to lease.

Michael Zobrist, a managing director for the retail division of Newmark Knight Frank in Las Vegas, says the new business model means restaurants need fewer tables to serve the same number of meals. That, in turn, translates into requirements for smaller spaces that require less capital for tenant improvements while providing greater operational efficiencies.

Carry-out and delivery services, Tremaine notes, don’t generate a lot of profit for most restaurants, but they create added value without much additional investment in space.

Responding to Demand

Developers are responding to the demand for the new generation of restaurant spaces.

“We’re seeing a lot of pad space in new developments,” says Christina Strickland, a senior associate who specializes in retail with CBRE in Las Vegas. “We’re also seeing a lot of drive-through spaces under development. There are a lot of tenants looking for that kind of space.”

Demand for space from personal service retailers such as hair salons also remains strong because they’re largely immune from online competition. Fitness centers, for instance, are a growing segment and soak up some of the shopping center space left vacant by apparel retailers or department stores.

“You can’t get the experience of going to the gym without going to the gym,” says Strickland.

She notes that other traditional retailers seek to shield themselves from online competition through the addition of new experiences. Think, for instance, of the home improvement store that offers Saturday afternoon classes to do-it-yourselfers. Or the grocery store that adds a carefully curated wine bar.

Landlords also view convenience retailers — even in segments such as auto parts, where right-at-the-moment availability is important to consumers — as relatively immune from the online onslaught, says Zobrist.

Some Struggle

While restaurants, convenience retailers and personal-services firms are thriving, other retailers have been hard hit by online competition. Department store spaces stand vacant in shopping centers. Apparel stores are closing. Remaining electronics retailers and bookstores are under pressure. Tremaine notes the impacts now cut across nearly the entire retail landscape.

“Now even the specialty dog food stores are being hurt,” he says. “Consumers can go online and get dog food delivered in two days.”

Adds Otter, “It’s ironic that we are seeing so many store closures from brands that weathered the recession but haven’t prepared for the online impact.”

Some, however, believe the handwringing about the future of brick-and-mortar retailing may be overdone.

“The buzz is all about the ‘Amazon Effect,’” says Zobrist, who is skeptical that traditional retailers face an online Armageddon. “But, Amazon itself is moving into brick and mortar because they know that online isn’t going to be the only game.”

Alternative Fills

Still, the changing face of retail means landlords and commercial real estate brokers find themselves with spaces to fill in shopping centers and big-box stores around the state.

The new emphasis on entertainment is clearly evident as empty space fills at Las Vegas’ Meadows Mall. After the 900,000-square-foot center lost Sears as one its anchor tenants, mall owner Simon Property Group leased 45,000 square feet of the former Sears space to Round 1 Entertainment, which offers bowling, karaoke, billiards and an arcade. Round 1, which is aggressively seeking similar second-generation space in malls around the country, tells developers that its stores draw big foot traffic — something like 100,000 visitors a year.

Another example is found at The Boulevard. The shopping mall, a fixture on South Maryland Parkway since 1968, has found new life after a years-long redevelopment effort spearheaded by Las Vegas developer Roland Sansone.

New tenants include a movie theater, an aquarium, a large call center on the second floor of a former department store and a Goodwill store (the first the non-profit ever opened in an enclosed mall).

Sansone sold the property this summer to companies headed by Las Vegas businessman Dennis Troesh, and the new owners are working toward redevelopment of the Sears store and 17 acres of nearby vacant land into stand-alone store spaces.

The site of the former Park Lane Mall — Reno’s first enclosed mall — shows another possible future for aging shopping centers. The shopping center was demolished, and Reno Land Inc. now is redeveloping vacant property into multifamily homes, offices and retail spaces.

In the big-box sector, “adaptive reuse” is the phrase of the day among landlords, brokers and urban planners who wonder about the future of vacant buildings.

“The sky is really the limit,” says Zobrist. “People are getting creative.”

Simply moving a new retail tenant into vacant space is the easiest answer, he says, but it’s an option that depends on the right location and the right tenant. Then, too, retailers don’t necessarily want sprawling spaces any more. Strickland says she talks with retailers across all segments that are focused on wringing more revenue out of smaller footprints.

Retailers also are looking for different configurations of space to meet their changing needs, Otter says. A strong emphasis on consumer convenience, for instance, is a key factor driving real estate decisions among retailers these days.

Think, for instance of big discounters such as Walmart. They typically offered store pickup services to consumers, but the pickup desk often was located in the back of the store in hopes the consumer would see something else while walking through the aisles.

Now, Otter says, retailers have moved pickup locations to the front of their stores, and they provide delivery to the consumer’s car in the parking lot.

In some instances, the answer for vacant big-box space is conversion of the space into a new use entirely. Otter notes, for example, that his team recently brokered the sale of the former home of a Big Lots store and a 24-Hour Fitness gym in Henderson to Signature Preparatory Academy, a charter school.

Tough Decisions

Strickland says brokers who lease big-box properties need to think hard.

“You have to be looking at the nearby area and thinking about what it needs,” she says. “You really have to be creative.”

Some vacant big-box retail space has been leased by health-care tenants, she says. Some has been converted to offices, distribution centers or self-storage complexes. And lots of experience-oriented retailers still find opportunity in big, open spaces.

The future of empty big-box stores in Reno and Sparks remains a difficult challenge, Tremaine says. Most of the major national retailers have established a presence in northern Nevada, but the region’s population isn’t large enough to support additional store locations.

That means that landlords either must swallow the cost of cutting large retail buildings into several smaller spaces or, taking a deep breath, knock the buildings down and start over.

Nevertheless, the online cloud that hangs over some big national retailers brings unexpected opportunities to smaller regional and local companies, says Zobrist. Retail landlords who once chased only big-name national tenants now are more open to signing leases with smaller companies.

But those tenants may face sticker shock when they begin lease negotiations.

Strickland says rents in retail spaces in Las Vegas have risen by about 9 percent in the past two years, and Zobrist says rents in some newly constructed retail spaces easily top $3 a square foot each month — and some even touch the $4 mark. But he is quick to note more affordable spaces often are found in older buildings.

Zobrist says landlords today often are taking their time to check out whether potential tenants are creditworthy and will contribute to the mix of a retail center. That’s a far cry from the days immediately after the recession when hardpressed landlords grabbed about any tenant who would pay rent, at least for a while, to fill an empty storefront.

Despite the pressures felt by traditional retailers, some new retail space is being developed across the state. That’s largely a function of residential growth as retailers — particularly grocers — open stores to meet the needs of new neighborhoods.

“We’re seeing grocery anchored centers continue to be very popular because of the daily-needs traffic they drive,” says Otter. “In Las Vegas, we’ve seen new stores from Sprouts, Smiths, Albertsons and others that come in and serve a different niche than the Walmart grocery customers.”

Even so, Zobrist says grocers have grown more cautious about new store openings while they sort through the effects of aggressive expansion into the grocery business by Walmart, Target and other discounters. In Reno and Sparks, new retail development has been scant even though new homes are sprouting rapidly.

“Our construction costs are so high that it’s not feasible to build anything,” says Tremaine. “Developers just can’t get the rents they would need.”

Still, he expects to see some new retail projects under way fairly soon in the southern reaches of Reno as well as the fast-growing North Valleys. For all the changes in consumer expectations, brokers expect traditional retail spaces to remain in demand.

“Retail is changing,” says Strickland. “It is constantly changing. Right now we’re learning what the new normal is going to be. But retail isn’t dying. It’s just changing.”

Filed Under: Building Nevada Tagged With: CBRE in Las Vegas, Christina Strickland, Dennis Troesh, Jason Otter, Las Vegas business, Logic Commercial Real Estate, Meadowood Mall, Michael Zobrist, Nevada business, Newmark Knight Frank, Park Lane Mall, Reno business, Roland Sansone, Round 1 Entertainment, Simon Property Group, The Boulevard

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