LAS VEGAS — That sweaty gym sitting in an old department store or bookstore’s former space? It’s no longer getting the side eye from other retailers or property owners.
The commercial real estate downturn that came with the Great Recession had landlords getting creative with the lease deals they were inking from Target now anchoring some malls to the aforementioned gyms taking up space from bankrupt book stores or home goods retailers, but those weren’t just fads to get the industry through the downturn. They’re getting property owners through the next set of challenges that has come with an environment in which digital disruption paranoia is par for the course in any conversation on the industry.
“Take the retail that will provide the most strength for your tenants,” advised Paul Ajdaharian, executive vice president of real estate investment trust WP Glimcher, while speaking during a panel at the International Council of Shopping Centers’ annual RECon conference taking place here through Wednesday.
The firm has about $150 million to $200 million allocated towards redevelopment, expansions and remodels of properties within its portfolio.
“We want to do deals with things to do, not things to buy,” Ajdaharian added.
The sentiment goes back to the experiential conversation surrounding what motivates Millennials to spend.
The executive said the firm is doing a large amount of deals with gyms and, in some cases, taking out the dated food court concepts of the malls of the Eighties and replacing them with movie theaters or other entertainment uses. There’s also the city offices and other community-type tenants and services that have been a focus.
“Retailers and customers want to go into the projects that are the busiest,” Ajdaharian said. “Activity breeds activity.”
Those types of tenants may have been scoffed at by other tenants in the past, but attitudes have shifted.
“Not that long ago, I was at a different retail company, but I didn’t think that a large fitness box was a good co-tenant,” said David Krueger, Ulta Beauty senior vice president, during the same panel.
Krueger’s thought was someone like his wife, who worked out at the gym, and would dart back home after a workout rather than stroll through a center.
“The consumer keeps changing,” he said, pointing to the rise of ath-leisure that’s made it acceptable to now wear workout clothes just about anywhere.
Bill Beckeman, founder, president and chief executive officer of Linear Retail Properties LLC, spoke to similar trends his company has been seeing play out over the past decade in a separate talk during the conference Monday.
“In today’s world, a lot of the national things that focus on commoditized products are struggling more with having to be multichannel and we really were focused [from the start] on internet-insulated types of businesses, things that are focused on food, restaurants, coffee and services,” Beckeman said during his talk. “And we’ve had the proliferation of services over the past decade or more.”
Beckeman pointed to health services, ranging from cycling houses to medical service uses, such as urgent care centers, that he said are “exploding.”
Linear, which has a portfolio of properties centered in and around the Boston area, has about one-third of its centers in urban markets with the remainder in suburban locales — it’s the former that’s currently trending very strong, Beckeman said, with “almost no vacancy.”
“We don’t have much in our suburban [properties] either, so I think pretty much across the board, we’re feeling pretty good demand for space and we’re seeing rents starting to pick up. That’s coming off the company’s best year ever, according to Beckeman, during which it spent more than $100 million on more than a dozen property acquisitions.
About 60 percent of the centers’ tenants are restaurants or services and that trend will only continue, Beckeman said. But Linear has also insulated itself from the challenges many centers face with a leasing strategy focused on local or regional players that create points of distinction in the marketplace.
“We really aren’t focused on anchored centers as much, but more on the quality of the small shop space and the quality of the real estate location that we’re pursuing,” Beckeman said.