The Open-Air Advantage: Flexibility, Diversity and Adaptability Drive Sustained Appeal
By Matthew Harding, CEO, Levin Management Corp.
Serving as one-stop destinations to meet consumers’ daily needs, open-air shopping centers — especially those with grocery anchors — have long been a fan favorite of shoppers, tenants and investors. Over the past 18 months, this asset class has again proven its ability to adapt and serve in any market climate — and under the most challenging of circumstances.
Operational Flexibility Is Key
By their nature, neighborhood, community and power centers provide a higher level of operational flexibility than other commercial product types.
For example, during pandemic-fueled business interruptions, open-air environments enabled tenants to be more creative and accommodate new or expanded uses. This included increasing outdoor space for dining or fitness classes and expanding fulfillment options by setting up curbside pick up.
Levin Management’s own mid-year survey of store managers within our leased and managed portfolio, which is comprised largely of open-air product, showed that many of the changes that were made out of necessity last year are now being kept as best practices. For the most part, tenants are responding to stepped-up prioritization of customer convenience.
We have seen how quickly shoppers came back out once they could. Ultimately, people like — and want — to shop in person. But they also expect an experience that is safe and efficient. Agile retailers will continue to embrace change with their customers’ wants and needs in mind, and open-air centers are well-positioned to support them.
The Advantage of Diversity
Open-air centers accommodate tenants of all shapes and sizes; this diversity is part of what creates an appealing shopping experience for consumers.
Leasing activity to date in 2021 illustrates this point. Essential categories of retail are leading the way in terms of absorption of open-air space. This activity is highlighted by elevated demand for space from grocers, including new leases, relocations and expansions.
Pharmacies and national off-price and value retailers are also taking advantage of current market opportunities. A wide variety of fast casual restaurant chains, which are welcome additions to any shopping center, represent another bright spot in the leasing landscape. The same applies to personal care and services retailers.
National brands and franchisees are making deals. We also are seeing movement among independently owned retailers. This includes businesses launching new concepts, expanding current operations or moving to improve location. In any event, retailers are taking advantage of space availabilities that came on line due to the pandemic. This activity is happening at a steady pace, fueled by current market conditions.
Mayfair Shopping Center in Commack, New York, provides a real-time snapshot of this trend. Our team recently completed a 30,000-square-foot lease at Mayfair Shopping Center with German discount grocer Lidl. Four additional commitments totaling approximately 15,000 square feet are bringing three new dining concepts and a popular specialty food store to the property. Additionally, Planet Fitness is gearing up to open a 20,000-square-foot gym at the center.
Adaptability Pays Off
In the perpetually fluid retail environment, open-air properties have the ability to change with the times.
At St. Georges Crossing in Woodbridge, New Jersey, Levin Management recently renovated a freestanding outparcel building that was formerly occupied by a Bertucci’s restaurant and leased the space to three new tenants: a Comcast Xfinity retail store, Popeye’s Louisiana Kitchen and Jersey Mike’s subs. This is a great example of not just backfilling space but also repositioning that space and filling it with the right tenants –— in this case, brands that complement the existing tenant mix and add to the property’s dynamic.
Transformation is nothing new in the retail real estate industry. As new concepts come on line and others reach their end, the cycle creates an ideal environment for repositioning and reinventing assets. Again, open-air centers remain at the forefront.
Levin recently capped off a series of renovations at Twin City Shopping Center in Jersey City by converting parking lot lights to LED fixtures, installing new pylon signage and post-and-rail fencing, as well as upgrading the landscaping. The timing of these capital improvements coincided with a recommitment by anchor tenant Aqui Market.
The overall enhancement has also directly contributed to a successful modernization of the tenant mix. This revamping of the roster includes the additions of Taco Bell and Popeye’s Louisiana Kitchen, a new lease with Snap Back by Hook & Reel and a current remodel by long-time tenant Dunkin’, which will introduce one of the brand’s “next generation” restaurants featuring a fresh new design and innovative features.
Arguably, achieving or upholding an environment that is both attractive and that provides a safe and convenient shopping experience is more important today than ever. Efforts toward this goal can range from simple landscaping updates to larger-scale improvements when necessary, as well as ensuring the center is operating efficiently.
Further, many landlords are taking a step back and focusing on what needs to be done to best position their properties for the next chapter, rather than just filling vacant space. This approach tends to involve a renovation element. With the continued momentum of “live, work, shop, play” environments, adaptive reuse projects are also becoming part of the conversation.
High Investment Appeal
Finally, open-air product also is ripe for investment activity. Recent research from CBRE shows that as demand for net-lease properties inches back toward pre-pandemic levels, key Northeast markets, including Northern New Jersey, New York City and Boston, rank in the top 20 markets for investors targeting the retail sector.
In particular, grocery-anchored centers are among the most sought-after real estate categories and are commanding low cap rates driven by low interest rates. Simply put, properties with supermarkets do better than those without, drawing strong and steady traffic that boosts leasing appeal and, subsequently, return on investment.
In general, however, investor affinity for all well-located, well-tenanted open-air shopping centers has endured through decades of market cycles and the continually evolving landscape of retail itself. This advantage is sure to continue.
— Levin Management Corp. is a commercial real estate services firm based in North Plainfield, New Jersey.