Why Brick-and-Mortar Retail Still Shines

Some may believe AI poses a threat to brick-and-mortar retail. A recent Colliers report declared the opposite is true: Physical retail is being reshaped by AI, not retreating from it. “For retailers, landlords and investors alike, the question is no longer whether to participate in this [AI] transformation. It is whether the property you own, the tenant you lease to and the framework you underwrite with can keep pace with how quickly its implications are arriving,” according to Colliers’ How AI Is Redefining Retail Real Estate in 2026: What Developers, Landlords & Retailers Need to Know.

The report noted that 85.1% of U.S. retail sales still flow through brick-and-mortar stores and 71% of retailers are expanding their footprints this year. “One of the biggest misconceptions around AI is that it reduces the importance of physical retail,” said Colliers senior manager of national retail research Nicole Larson. “In reality, retailers are expanding footprints and redesigning stores as physical locations are becoming even more critical to fulfillment, customer engagement and operational efficiency.”

MORE FROM C+CT: Omnichannel Fulfillment Is Reshaping Shopping Centers. Are Landlords Ready?

In an AI World, Shoppers Still Want Real-World Experiences

An ICSC LAS VEGAS session titled From Sites to Solutions: Driving Growth Through Redevelopment, Expansion and Tenant-Mix Strategy delivered another clear message about AI: A thirst for real-world experiences and connections is driving renewed confidence in brick-and-mortar retail.

“Retail is fun again,” said Pacific Retail Capital Partners COO Donna Blair. “We’re in this AI world, and what do we want? We want what’s real. We want what’s human. Gen Z, the most virtual generation, wants to be in the moment. They want to be seen. They want to experience things.” According to Blair and other panelists, the pandemic reminded consumers what they’d been missing: human connections, sensory experiences and social interaction. Digital screens can’t replicate that.

MORE FROM ICSC: The Rise of the Gen Z Consumer

Case in point: Centennial spent $60 million to create an indoor park at Fox Valley, a 1.5 million-square-foot enclosed superregional mall in the Chicago suburb of Aurora, Illinois. “That $60 million by itself had no clear return in terms of income,” Centennial president and incoming CEO Paul Kurzawa said. Still, he added: “Today, Fox Valley is a much stronger asset because of it.”

Unibail-Rodamco-Westfield U.S. COO Dominic Lowe emphasized that even the best experiential retail will reach a tipping point if basics like parking fall apart. He noted, for instance, that parking “is a massive issue right now” at Westfield Century City in Los Angeles, though the retail and entertainment center offers 4,755 parking spots. “If we don’t get that right, that becomes a limiter,” Lowe said, adding: “The more you invest [in the basics], the more traffic there is ... and then you capture sales and some of the rent, which pays for continued investment.”

Mixed-Use Densification Needs More Than Residential Add-Ons

During the same session, panelists warned that adding uses can flop without a solid master plan. Adding residential, office, hospitality and entertainment components to retail sites succeeds only with cohesive, carefully phased master plans that enjoy municipal backing, according to the panelists. Blair urged mixed-use developers to create neighborhoods “rather than just popping up some residential.” Championing “intense densification,” Lowe echoed Blair with his comment that people “deserve a bit better” than residential being dropped haphazardly into a mixed-use project.

Anchor Vacancies Can Give Landlords More Control

Anchors can drive inline rents, increase lenders’ confidence and boost the long-term value of projects. So does an anchor vacancy conversely jeopardize a retail property? CBRE Retail services senior vice president Joe Parrott, peaking at an ICSC LAS VEGAS session titled Reimagining the Anchor: Strategies to Transform Space into Opportunity, said losing an anchor tenant is “an opportunity to revive your center and bring it forward in alignment with the current needs of the consumer. You can bring in a much more relevant, fresh anchor tenant that’s going to ensure the long-term viability of the center.”

A fellow panelist, Cushman & Wakefield senior managing director and Americas retail platform lead Alanna Loeffler, said anchor vacancies give landlords leverage amid a tight supply of new retail space and overall declines in gross leasable area. “Landlords are really coming from a position of strength,” she said, “and what they have when this sort of situation takes hold is just control: control over the vision for the center, enhancing the consumer experience.” However, Parrott cautioned that while landlords shouldn’t force deals in order to fill space quickly, they shouldn’t dally, either. The landlords that lose deals, he said, “tend to have a misunderstanding that you can walk a deal along for six months or 12 months without moving quickly. You have to seize that opportunity because tenants have lots of opportunities across the country and they’re looking to fill their pipeline and they lose patience.”

Subdividing Big Boxes Can Attract More Tenants, but It Comes at a Cost

One of Loeffler’s significant takeaways for developers, landlords and brokers: Consider the square footage tenants are seeking. “In our business, we see the most activity in spaces that are 25,000 to 45,000 square feet,” she said. Thus a 100,000-square-foot block that’s subdivided certainly will draw more interest than the larger box, she noted. Parrott, however, pointed out there’s a financial trade-off to subdividing. Backfilling a vacated box with a single tenant spares the landlord the costs of multiple buildouts, split utilities, and additional doors and loading docks, he said.

Energy Systems Can Become a New Source of Ancillary Income

Commercial buildings, including shopping centers, consume 35% of electricity in the U.S., according to the U.S. Department of Energy, so landlords understandably explore ways not only to manage energy costs but also to generate revenue from energy. Veckta co-founder and CEO Gareth Evans analyzed the combined portfolios of ICSC LAS VEGAS participants Perform Properties, Phillips Edison & Co. and Regency Centers, which collectively own more than 120 million square feet of retail space. His assessment: Across the three portfolios, installation of an optimal energy system of elements like solar installations, battery energy storage, natural gas generators and electric vehicle charging stations could produce net operating income of $35 million to $45 million for the three owners, based on potential cost savings and ancillary revenue.

Evans shared those figures as moderator of an ICSC LAS VEGAS panel, From Rooftops to Revenue: The Technology Behind Monetizing Solar in Grocery-Anchored Portfolios. One of the panelists, Regency Centers vice president of sustainability Mark Peternell, said that solar was the REIT’s first sustainability effort to be “a really good source of ancillary income” but that EV has surpassed it. “We love the opportunity not only to generate a good revenue stream,” he said, but to provide an amenity for shoppers.