The marketplaces industry is in recovery mode but still bears some scars from the pandemic, according to many of the 22,000 attendees at ICSC 2022 Las Vegas.

Consumers continue to shop despite inflation and supply chain disruption, pushing well-capitalized retailers to add stores and prompting investors seeking big returns to put their money into the marketplaces industry.

New retailers are growing, new tenant classes are emerging and existing tenants are finding their physical stores more important to growing profits and sales than ever.

But many landlords came to ICSC 2022 Las Vegas with vacant space to lease after the pandemic closed their weakest tenants, some of which operated large stores. “If we never build another square foot of retail space in this country again, it might be too soon,” said Madison Marquette senior vice president of leasing John-david Franklin. “There’s an extraordinary amount of vacancy. Most don’t know how they’re going to backfill space lost in April 2019.” One attendee called the country’s worst-located malls and empty 100,000-square-foot big-box stores “bulldozer bait.”

One of the industry’s biggest challenges will be reviving and retrofitting second-generation space to accommodate today’s growing tenants. Government officials are often the best collaborators on such projects, a source of tax breaks and other incentives that can motivate retailers and other end users to choose second-gen space.

One example is the $7.5 billion the federal government set aside for electric vehicle-charging infrastructure support. An owner with property along a highway, one mile from an exit, could get high-end DC charging installed for free, according to Blink Charging senior vice president of business development Mike Battaglia. Cities could boost revitalization by putting these chargers near downtowns to draw traffic as more consumers adopt electric vehicles, said Retail Strategies president Lacy Beasley.

Growing Retailers Demand Space

Don’t expect to see many more store closures this year. Retailers have learned how to manage their portfolios better and already shed many unwanted units during the pandemic, said JLL retail advisory services president Naveen Jaggi. In fact, expect to see store openings continue to outpace closings in coming years, he added. “Retailers can only grow comps so much,” he said. “They will need to open new stores to keep growing sales.”

Who’s growing? International retailers are keeping leasing agents at top malls and high streets busy lately. Luxury retailers from all over are focusing on the U.S. for store growth after decades of focusing on Asia and China, Jaggi said. International retailers of all kinds also are looking to the U.S., and they’re powered by European venture capital that will allow them to do creative new things that debt-laden U.S.-owned retailers can’t afford. Examples include BrewDog and Funlab. International operators also say the U.S. has lower barriers to entry than other countries, Jaggi added.

New entertainment concepts abound, too. Angevin & Co. CEO Robert Thompson was at the event to promote his company’s food hall-style eatertainment concept, Jaguar Bolera, which will open in Raleigh, North Carolina, early next year. A second location will open in New Orleans in 2024. The spaces will start at around 18,000 square feet.

Tenants of all types continue to expand. Edens announced deals with 10 tenants opening 34,000 square feet in the company’s Union Market District redevelopment in Northeast Washington, D.C. The tenant makeup is typical of the evolving marketplace. Iconic New York restaurants Minetta Tavern and Pastis will open their first local units there. The lineup also includes a trendy local tattoo parlor and local men’s clothing brand Somewhere. Luxury wedding dress brand Grace Loves Lace and clothing brand Scotch & Soda will make their D.C. debuts there, and Herman Miller, Warby Parker, Glosslab and Maman are among the other brands taking space at the project.

The only thing slowing growing tenants down is a supply chain that’s keeping stores from opening on time. It used to take six to eight months to get HVAC equipment, and now it takes as long as 18 months, according to Franklin. Tenants increasingly are trying to work around the problem by purchasing used fixtures and pre-built restaurant equipment, according to Cushman & Wakefield executive managing director of retail services for Canada John Crombie.

Retailers also want to own more of their own industrial assets, and they’re even considering bringing manufacturing back to North America from Asia to have more control of the supply chain, according to Jaggi. Additionally, they’re stocking fewer seasonal items, he said.

Interest Rates Won’t Slow the Market for Top Retail Properties

Meanwhile, investors are becoming increasingly fond of top retail properties, particularly those anchored by supermarkets and freestanding fast-food and drugstore properties, even though rising interest rates are making retail properties more expensive. A 10-year Treasury rate of 10% or higher is here to stay for a while, and it’s going to change how retail properties trade, according to Citi North America real estate head Scott Eisen.

The average cap rate on retail property deals in May was 6%, according to CoStar Group. Even as prices rise, the income of the properties being purchased is growing fast enough to justify the higher prices, according to CoStar director of U.S. retail analytics Brandon Svec.

Even so, don’t expect to see one of Unibail-Rodamco-Westfield’s rival REITs sweep in and buy the company’s portfolio of 24 Westfield malls in the U.S. outright. The window has passed for that kind of big buy because the cost of capital has gotten too high, Eisen said. The rise in financing costs also has made privatization much more expensive. Those high-octane deals are cost prohibitive because of the cost of debt, said Eisen.

Expect URW to sell four to six of its top properties in one deal and then sell the remainder bit by bit through the end of next year, said JLL Americas retail president and CEO Greg Maloney. “The problem right now is pricing,” he said, adding that if the deal drags out too long without the properties getting new investment, their value might decline.