The Milwaukee-area apartment market wasn’t the only real estate sector to benefit from continued job growth and household formation in 2016. The optimistic employment outlook, together with an influx of millennials who, according to Gallup, are spending more on nonessentials, has benefitted the local retail market as well. It’s a trend that we expect to continue in 2017.
Filling a retail void
A market that historically has been largely underserved in terms of new retail development has essentially reversed its standing, with approximately 1.6 million square feet delivered in the last two years alone, according to CoStar Group.
Brenton Schrader, HSA Commercial Real Estate
A more diversified economy less susceptible to the highs and lows of other markets, taken together with Milwaukee’s public-private partnerships and lower real estate taxes compared with neighboring states, has created a pro-development environment that appeals to retailers and developers alike.
Known for its older stock of shopping centers, the region has seen a surge in redevelopment activity, particularly in the suburbs, where previously underutilized assets are being rebranded and reimagined.
In November 2016, HSA Commercial acquired the 217,346-square-foot Brookfield Fashion Center in Brookfield, just west of Brookfield Square Mall. Built in 1986, the center houses stalwart tenants that have been retained over the past three decades including LensCrafters and Pier 1 Imports.
Brookfield Fashion Center’s tremendous trade area demographics and visibility on Bluemound Road present an opportunity to reinvigorate the tenant mix as part of a long-term repositioning plan.
The strategy employed at the Brookfield Fashion Center mirrors our firm’s approach at the former Plaza 173, a 92,000-square-foot retail center located a quarter-mile west on Bluemound Road.
New anchor tenants at that property, which is being rebranded as Calhoun Crossing as part of a full-scale redevelopment, include Fresh Thyme Farmers Market, Total Wine & More and DSW Designer Shoe Warehouse.
Similarly, The Mayfair Collection, our multi-phase mixed-use development in Wauwatosa — located about 10 miles west of downtown Milwaukee — involved repurposing 1 million square feet of obsolete warehouse into modern retail environments.
The project’s second phase, anchored by a Whole Foods Market and HomeGoods, was the largest retail delivery in the Milwaukee metro in the first half of 2016.
Omnichannel approach
All three projects underscore how HSA Commercial and other developers continue to see viability in brick-and-mortar retail, even as e-commerce accounts for a growing share of total sales — 8.4 percent in the third quarter of 2016 versus 7.4 percent a year earlier, according to the U.S. Census Bureau.
Ironically, as traditional retailers look to expand their web presence, Amazon is moving in the opposite direction, experimenting with physical storefronts like bookshops, convenience stores and grocery stores designed to enhance the company’s online offerings.
In order to navigate today’s evolving landscape, retailers and developers are looking to create in-store experiences that can’t be replicated online.
The formula for success: a diverse product offering created through depth and rotation, promotional pricing tailored to bargain hunters and personalized service centered around face-to-face interaction, loyalty programs and members-only events.
Offering discounted inventory that varies from store to store and includes items unavailable for purchase online, off-price retail has emerged as a particularly resilient segment of the retail market.
Moody’s forecasts growth of 6 to 8 percent over the next five years, versus 4 percent for the broader apparel market. Macy’s, Lord & Taylor and Kohl’s are among the newer players in the sector, with the latter selecting The Mayfair Collection for one of the first Off/Aisle by Kohl’s stores in the country.
Other off-price tenants in the center include Nordstrom Rack, Saks Fifth Avenue OFF 5th and J. Crew Mercantile, which create cross-shopping opportunities by appealing to the same cost-conscious consumer.
Variety on the menu
Adding to the experiential nature of shopping centers are restaurant and service offerings such as yoga studios, health clubs and spas. In Wauwatosa, rather than working exclusively with national chains, HSA Commercial partnered with several of the Milwaukee area’s most prolific restaurateurs to create a diverse mix of culinary offerings designed to bring energy and authenticity to the project.
Other notable local developments, including The Corners of Brookfield and Drexel Town Square in Oak Creek, have employed a similar strategy of targeting local restaurateurs to enliven their mixed-use projects.
These restaurant concepts are especially appealing to millennials, who have a penchant for spending their disposable income on social experiences. Compared with older generations, millennials are setting aside more money for leisure activities.
In some cases, the evolution of retail is evident in the names of existing shopping centers. Although a new identity for the Brookfield Fashion Center has not yet been determined, the property’s redevelopment will include a rebranding that reflects the more tangible, service-oriented experiences today’s centers aim to provide.
And those centers aren’t going anywhere anytime soon. By 2021, Forrester Research estimates that the web will influence 40 percent of in-store sales. Yet even if they have online origins, many of those purchases will still be made in stores, suggesting that while brick-and-mortar will continue to evolve, retail will still provide an important touchpoint for brands to reach their customers.
-By Brenton Schrader, Vice President, Retail Leasing and Marketing, HSA Commercial Real Estate. This article first appeared in the March 2017 issue of Heartland Real Estate Business magazine.