“Retail commercial real estate (CRE) in Nevada is a tale of two cities, really,” said Chris Richardson, CCIM, director, Logic Commercial Real Estate. “On the one hand, I have never seen such demand for new drive-through restaurants in good areas. It seems like everyone is expanding and some quick serve restaurants that never incorporated drive-through before are starting to incorporate it now. On the other hand, it seems like junior box retailers – stores that are more than 15,000-square-feet – are a lot more risk averse to expanding and in fact, a lot are reducing their stores count, or closing altogether.”
Retail CRE isn’t static. Properties change as the economy changes. Vacancy rates rise during economic downturns and occupancy rises when the economic situation improves. Retail CRE changes with consumer demand and retail trends, and since 2020, CRE retail has changed in response to the pandemic.
“For Brookfield’s assets, the retail market is active, and we’re seeing little change post-COVID,” said Denise Marsicano, senior vice president, leasing, Brookfield Properties. “In fact, stores with expansion plans, especially in the luxury category, are actively building out new spaces. Examples include Salvatore Ferragami, Louis Vuitton, Sushi Samba, and Capital One.”
Not every store is expanding. Not every retail chain is even remaining in Nevada. Some consolidate stores or leave the area. Others file for bankruptcy.
“We’re not seeing any big boxes coming to Reno,” said Gary Tremaine, retail broker Dickson Realty Commercial Group. “But gyms are another thing and they’re looking in this area. We lost a Fitness Connection and two 24 Hour Fitness gyms that went dark. They closed up here in the Reno market, but we’ve added a Crunch Fitness in Sparks and a Planet Fitness.” There’s another Crunch in Meadowwood Mall, and some of the smaller franchise gyms are coming into the area.
Brick and mortar stores are experiencing a rebound as shoppers head back out as the pandemic wanes at the same time online shopping is exploding.
“The ‘Amazon Effect’ is real,” said Richardson. “When customers were disrupted from their brick-and-mortar store habits, they changed them, sometimes permanently. There are some grocers opening up in newer areas of Las Vegas, and there is some repositioning, but most of the new store openings have been smaller retailers or drive-through quick-serve restaurants as they infill parts of Las Vegas.”
If You Build it, Will Anyone Come?
Now that shoppers can return to brickand-mortar stores, there’s the question of whether or not they will, and whether demand for in-person shopping experiences grew during quarantine or became an outdated habit.
So far, the news seems good. Online stores are looking for brick and mortar presence, and brick and mortar stores are creating online presence.
But the market is changing. While brick and mortar stores are busy putting their inventories online and setting up curbside pickup, there are online stores finding the need to become physical.
“A lot of online retailers in the last decade decided they need brick and mortar locations as well,” said Andrew Ciarrocchi, senior vice president, management and operations, The Howard Hughes Corporation. “You always hear on the news that everything is online, online, online, but you don’t hear as much about the folks like Fabletics that was purely online and now has hundreds of brick-and-mortar stores. This year Barbell Apparel which had a very strong online brand did their first popup brick and mortar store in Downtown Summerlin.”
Currently retail is adapting, becoming a strong mix of actual stores with an online presence, and online stores creating brick and mortar alternatives for those consumers who want to tactile experience before buying. Retail CRE is adapting to fit those needs.
That said, the typical soft good retailers aren’t growing, at least in Northern Nevada, said Tremaine. And where they are locating may not be in a mall. The trend to locate in retail malls was changing before COVID hit. Lifestyle centers where shoppers can walk from store to store are popular, especially beautifully landscaped centers.
Retailers are looking not so much at malls as they are at areas with high traffic. “It could be a little strip center, it could be an anchored center, but the malls, they’re not looking to go into malls,” said Tremaine. “Maybe some of the national retailers are but not all retailers.” With a nod to beautifully landscaped centers, Tremaine points out that Legends at the Sparks Marina is one Reno-Sparks mall that’s doing very well. “A lot of that goes to the outside paths that they’ve done. I don’t know what their vacancy is within the mall itself, inside SCHEELS with all the little shops, but the outside path shops are almost 100 percent full and they’re doing construction right now for a tunnel car wash next to the Target.”
In an attempt to keep up with trends, traditional malls aren’t quite so traditional anymore. They’re chancing to encompass experiences as well as shopping.
“There’s no fear of the ‘indoors,’” said Marsicano. Retailers are locating where the foot traffic is, whether that’s an indoor mall or an outdoor lifestyle center. All properties are tasked with keeping shoppers safe as the pandemic winds down, and consumer confidence shows as shoppers head to those centers.
“The traditional businesses that locate in malls are changing,” said Richardson. “The experience factor has changed. It’s interesting to see Meadowwood Mall in Reno and Meadows Mall in west Las Vegas both have ROUND1 Entertainment,” said Richardson.
ROUND1 is a Japanese-based amusement store chain that offers a variety of games for families, young adults and children, from bowling alleys to arcade games, karaoke to billiards. The venue can be booked for parties. The Boulevard Mall in Las Vegas has an aquarium and a go-cart center in addition to shops and restaurants.
As online shopping grows in popularity, some brick-and-mortar centers look to drive foot traffic with the kind of venues that have to be visited in person – gyms, hair salons, restaurants, and properties that offer experiences like ROUND1.
“We’ve curated our portfolio with salons, fitness, restaurant, entertainment and experiences long before the pandemic,” said Marsicano. When leasing their centers, Brookfield Properties works to create a venue that can meet all of the consumers’ needs, from food to entertainment to shopping, instead of becoming a center that’s only visited occasionally for certain items.
Other centers draw traffic with annual events. Downtown Summerlin’s Parade of Mischief, a celebration of all things Halloween, returned October 2021 after a hiatus during 2020.
Some retailers work to provide customers with consistent, relevant and individualized experiences that overlap between in-person and online shopping, creating a draw to their properties as well as their websites.
And not all shoppers need incentives to visit their favorite shopping center. “The brick-and-mortar experience was sorely missed by our customers during the height of the pandemic,” said Marsicano. “Traffic levels at our malls are 90 percent of what it was prior to the pandemic, with sales 10 percent over 2019.”
Changes made to accommodate shopping during the height of the pandemic remain. Many stores have changed their layouts to meet consumer needs. Some dedicate part of their parking lots to make room for customers who buy online to pick up curbside. Some larger retailers like Nordstrom Rack have dedicated a large segment of the cash wrap area to store pick-ups. It’s a win for both consumer and retailer, since it’s convenient for the shopper and for the retailer, the more customers come into pick up orders, the more likely they are to shop for something else. The property wins as well, when there are open, attractive restaurants nearby, said Ciarrocchi.
Speaking of Food
In addition to retailers using buy online, pick up curbside, restaurants that never had a pickup option are doing very well with the new options. Fast food restaurants are doing very well with using DoorDash, Grubhub, and Uber Eats. “Some of our restaurant clients saw some of their best sales during COVID because of new takeout options,” said Tremaine.
As a retail category, restaurants aren’t so much evolving as exploding. Demand is up for the “sweet spot” size of 1,000 to 2,000-square-feet, said Tremaine. “I’m talking bars and breweries and any type of restaurant food use location is very hot in this market and we have very few locations [in Reno] that are available for those uses.”
That’s both because they fill up instantly, and because so many need to be fitted with grease interceptors, which very few locations have, and the cost of installing them is around $30,000. Landlords don’t want to pay for them and tenants, often on tight budgets, can’t. That’s why second-generation spaces that once had a grease interceptor or, better, still do, are moving fast. “Those are on fire in every part of the city – Southwest Reno, Northwest Reno, Sparks. All other retail is steady but it’s not on fire by any means. Part of that is still COVID – no one is really willing to open up a second store or do anything until the matter of the COVID is situated.”
Southern Nevada is seeing a similar trend with retail CRE properties. Foot traffic is returning to shopping centers, and restaurants are doing very well.
“We’re seeing a lot of dining on property, both quick serve and sit down,” said Ciarrocchi. Restaurants have actually added to their sales by adding takeout and delivery services that didn’t exist before COVID. Downtown Summerlin is an outdoor property, a hybrid lifestyle center and anchored center. With Southern Nevada’s weather and a landscaped development, restaurants with patios that allow outdoor dining are seeing a definite rebound in foot traffic.
Another new retail CRE trend is the emergence of ghost kitchens. A ghost kitchen is someone cooking in a commercial kitchen and essentially running a virtual restaurant because there’s no restaurant location in real life. It’s all online, where they’re taking orders and using the food delivery services to pick-up and deliver orders. It’s something new, Tremaine said, and it’s growing fast. It’s new enough that there aren’t enough kitchens and they aren’t being built or renovated from other properties quite yet.
“Kitchens are very expensive, for example, a hood could run $50,000, $60,000, $70,000 and another $30,000 for the grease interceptor, walk-in coolers and freezers run about $10,000, so just to build the kitchen you’re close to $100,000.”
Commercial kitchens are also in demand for food trucks, which are having tough times finding places to do their cooking and prep of meals. “That’s something else lacking in inventory,” said Tremaine.
What to Sell and Where to Sell it
Retail commercial development has changed since the start of the pandemic. There’s less emphasis on junior box-sized stores and more on convenience users.
Retail CRE was changing even before the pandemic hit. Shopping habits, the advent of more online shopping, and economic conditions can lead to stores coming into retail centers or leaving and deciding whether to expand or close up or consolidate shops in various states. Post-COVID inventory is tight even if most retailers aren’t expanding.
“We’re not seeing the developments like we should be because of the cost of construction,” said Tremaine. “The cost of construction is so high that it’s not feasible for developers to build. We have enough tenants looking, especially in Southwest Reno, but the rents that would need to be [charged] to make the cost of construction feasible, is higher than what most mom-and-pop shops are willing to or can spend. The nationals, now, they can probably spend that, but again, the lack of land and the high cost of construction is just not making it worth anyone’s while.”
The lack of new retail construction and good locations is one reason the vacancy rate in the Reno-Sparks area is right around 6.5 percent, said Tremaine.
Even when a new retail property opens there’s no proof the retailers that locate there will all fit. “There have been many national retailer bankruptcies over the last couple years and we’re not immune to any of that,” said Ciarrocchi. There’s also a long list of chain retailers that worked to avoid bankruptcy and stay open, and there’s a long demand list of retailers that want the spaces when other chains vacate. During the 2020 holiday season, Downtown Summerlin opened Anthropologie, in 2021 Free People opened, and in October, Urban Outfitters. “We had a lot of demand to take some of the space vacated last year, so there wasn’t much down time.”
Construction costs are high, and land is hard to find. The Howard Hughes Corporation still has a couple hundred acres in the Downtown Summerlin development and plans for what to do with it.
“We’re still developing right here in the core, and that’s something we’re looking forward to seeing what Downtown Summerlin is going to be in the next couple years,” said Ciarrocchi. “I’ve really no doubt in the kind of demand we’re going to have for space, so that keeps our development moving forward.”