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Densification, Mixed Uses and Tertiary Markets, Plus Clinics Within Stores, Costco Expansion and More

June 1, 2023

Smart retail landlords are achieving big returns by freshening up their portfolios in 2023, according to CBRE’s Strategies to Solve Retailers’ Unmet Expansion Needs report. They’re making the most of the historically tight supply of prime retail space by densifying top properties, redeveloping underperforming ones and even acquiring and developing a few new properties in growing tertiary markets.

Smart capital, too, is eager to fund these activities, according to Todd Caruso, CBRE Retail Investor Services lead for the Americas. “Opportunities are particularly notable for patient, long-term capital on slowly recovering high street districts and well-located large-format properties that hold potential for additional development and adaptive reuse,” he said. “We’ll see additional expansion from retailers in tertiary markets offsetting the tightness in availability that exists in some major markets.”

The areas surrounding Class A malls and shopping centers are ripe for retail expansion, Caruso said. Developers and investors can densify these sites to meet demand while building off the established success of the surrounding area, he added. The trend is already underway in Miami’s Aventura submarket, where the 215,000-square-foot, open-air, dining and retail destination Esplanade at Aventura, will take the place of a former Sears, this year, according to CBRE.

Meanwhile, Class B space needs to be reimagined with more appropriate uses, he said. Approximately 60 Class B and lesser-grade malls in prime trade areas encompass 54 million square feet of underperforming retail space that could be enhanced with a mix of modern retail, office, residential or hotel, Caruso said.

While Kimco Realty doesn’t trade in malls, it’s jumping into the densification trend for its primarily open-air, grocery-anchored portfolio. It already has built 2,218 apartment units at its retail properties, and 1,139 more are under construction. The company’s goal is to construct 12,000 apartment units at re-entitled retail sites by 2025.

Meanwhile, tertiary markets are a compelling place for investors and developers to seek new opportunities. These markets represented 62% of net migration in the U.S. from 2019 to 2022, outperforming primary and secondary markets in population gain, Caruso said. “Lower land, materials and labor costs and lighter government regulations enable cheaper retail development,” he said. “Foot traffic and sales are often comparable to larger markets due to less competition in the surrounding area.”

More from C+CT on Densification

Retail Remains in Almost All Mall Conversions
How Developers and Architects Respond to Fears About Density in Suburban Mixed-Use

Health Clinics Within Stores Are Gaining Foot Traffic Faster Than Other Health Care Sites

Traffic at retail clinics within stores has more than doubled over the past five years, growing faster than traffic at urgent care centers, at primary care practices and at hospital emergency rooms, according to a report from health care data firm Definitive Healthcare. About 1,800 such retail clinics are in operation. Only 2% are in rural areas, representing an opportunity for further expansion. In rural Michigan for example, Rite Aid is working with rural medical provider Homeward to provide integrated pharmacy and clinical services in small-format, rural stores.

CVS has 63% of the market for clinics within stores and owns half the clinics in rural areas, according to the report. Kroger Health is the second-largest such operator in the U.S. Its 220 retail clinics give it a 12% market share. Walgreens is third with 8% of the market, and other players include Walmart and Dollar General.

Most such clinics are in the Southeast and the Midwest, nearly half of them concentrated in a few populous states, Definitive Healthcare found. Most patients visit these clinics for immunizations, COVID vaccines and diabetes treatments. Chronic illnesses like diabetes represent a growth opportunity for clinics as they broaden their services, according to the report.

More from C+CT on Health Care

Behind Rite Aid’s Small-Town, Small-Format Pilot
Medtail’s Move into Marketplaces

Costco Will Accelerate Expansion and 3 Other Retailers Making Headlines

Costco will grow its physical store footprint faster in the next four years to grab market share from competitors like Sam’s Club, according to CFO Richard Galanti. "We'd like to get above 25 [new stores] over each of the next five years and closer to 30 in years six through 10," Galanti said. Costco, which operates 587 U.S. stores, has averaged 23 new units per year for the past three years. Sam’s Club, which has 600 U.S. stores, has not opened a new store since 2017.

Genesco is banking on new off-mall stores to revive sales at its struggling Journeys shoe banner. The company has opened 13 off-mall Journeys stores and plans to open 12 more, even as it shutters 100 mostly mall-based stores. “We consider off-mall to be more of those power centers and locations that are anchored by a different mix of tenants,” Genesco president and CEO Mimi Vaughn said on an investor call. “Our customers go to off-mall locations multiple times per month. They enjoy the convenience of shopping closer to home combined with some of the omnichannel services that we can offer like curbside pickup.”

Giant is the latest retailer to complain about the high cost of fighting organized retail crime. To operate some stores in high crime areas, the retailer reportedly is limiting the number of entrances, stocking fewer high-cost items, limiting self-checkout and putting noisemakers on high-theft items like razor blades.

Von Maur believes in the mall. The retailer is making its second investment at West Acres in Fargo, North Dakota. In 2018, the company opened its popular Dry Goods store, a contemporary women’s apparel and accessories retailer. The success of Dry Goods gave the family-owned company confidence to invest further in the property. It will open a 90,000-square-foot Von Maur department store in the former Herberger’s there in spring 2025. This will be the state’s first Von Maur, and it joins the company’s 37 existing stores.

More from C+CT on Von Maur

What Year Is It? How a Michigan Lifestyle Center Landed a Classic Department Store Anchor

CBL Properties Names Reinsmidt COO

CBL named Katie Reinsmidt COO. Reinsmidt also will remain executive vice president. She’ll oversee operations of the company’s portfolio, strategic growth initiatives, analytics, financial performance and operating efficiencies. In addition, she’ll continue to provide oversight of CBL’s investor relations, corporate communications and environmental, social and governance programs. Reinsmidt joined CBL in 2004 as director of investor relations and most recently served as executive vice president and chief investment officer. Prior to joining CBL, she served as associate analyst at A.G. Edwards & Sons.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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