For Growth-minded Retailers, Good Real Estate Is Hard to Find
David Moin
7 min read
Inflation, politics, interest rates, immigration and warfare in the Middle East and Ukraine are all dragging down consumer confidence, yet amid it all, U.S. shopping centers are holding up.
That’s the view from the ICSC, which is staging its biggest convention of the year — ICSC Las Vegas. Running from Saturday through Wednesday, the event is a massive gathering of real estate executives, retailers, brands, consultants and industry experts examining projects in the works or planned for the future, negotiating leases, networking, brainstorming, and casino-hopping.
According to officials, ICSC Las Vegas, happening at the Las Vegas Convention Center, will draw a crowd of more than 25,000, slightly more than last year but a few thousand less than pre-COVID-19. About 800 exhibitors are participating, in line with recent years. The mission of the ICSC (no longer known as the International Council of Shopping Centers) is to promote marketplaces of all kinds, be it a mall, lifestyle center, outlet center, power center or strip center, places where people shop, dine, work, play and gather.
Just a few years ago, pundits were predicting a retail “apocalypse” and the death of the mall. But as far as the ICSC is concerned, that’s been a false narrative.
“This year, if you look at the industry overall, occupancy rates are in the 92 to 93 percent range. Retailers are finding there is a shortage of space, and where there is space available, it’s often not desirable or not suitable for their demographic,” Stephanie Cegielski, ICSC’s vice president of research, told WWD. In the U.S., she said there are about 112,000 shopping centers of one kind or another, including traditional malls, lifestyle centers and outlet malls.
“Oddly enough, consumers are still spending despite higher interest rates and the higher cost of goods,” she added. Among ICSC members, the general consensus is “positive, despite the inflationary environment and higher interest rates,” Cegielski said.
“When you look at the capital markets, there is a lot of discussion around rates,” she added. Current rates for borrowing for commercial real estate projects could be considered reasonable, historically speaking, though the industry got used to much lower rates, she said. Such rates can vary, depending on the terms of a loan, the borrower’s credit scores, a project’s risk profile, and the prime rate, currently at 8.5 percent, which lenders use as a basis to set loan terms.
“What I have seen and heard is that there are plenty of companies looking for capital, either for renovations or redevelopments,” Cegielski said, noting that if landlords and developers are not tapping large banks, there is a lot of capital available through regional and local ones. In terms of projects starting up, “There was a bit of slowdown in 2022 and 2023.”
Stephanie Cegielski
There are some major projects in the works. Woodbury Common Premium Outlets, owned by Simon, is adding 155,000 square feet of retail and restaurant space, bringing the center to over one million square feet, as well as a parking deck with 3,000 spaces to help relieve traffic jams and a 200-room hotel, and even a helipad.
Belmont Park Village, a 340,000-square-foot, high-end outlet shopping complex, is under construction. It’s part of the Value Retail portfolio which operates The Bicester Collection of open-air, service-oriented luxury outlet centers in Europe and China. Belmont Park Village, the first North American outpost of the collection, expects to house about 160 shops, and is located in Elmont, Long Island, adjacent to the Belmont Park racetrack and the UBS Arena.
Simon plans to further invest in The Galleria in Houston with an interior and exterior revitalization. The real estate investment trust indicated that to date, it has invested several hundred million dollars in the redevelopment of the property.
Post-COVID-19, retailers have noticed consumers shifting some of their spending away from material goods and more toward travel, dining and other types of experiences. But Cegielski said that trend is not necessarily a detriment to shopping venues because increasingly centers are being re-tenanted with activities and experiences, and travelers stay at the hotels at centers laden with retail. Also, outlet centers are typically near vacation destinations.
Asked what she thinks are the most pressing issues of the day, Cegielski said, “Probably from the retail perspective, it’s trying to find space. There is just not much valuable. That is a positive for the landlords. They’re fully leasing their space out.” Now retailers key in on what will be available two to five years out, she said.
In any presidential election year, conversations center around how consumer sentiment and spending are being impacted by the politics. According to Cegielski, it’s a nonfactor. It doesn’t impact spending at all.
“We looked at that four years ago and didn’t find any correlation whatsoever. In theory you would think there would be based on fiscal policies. But we found there wasn’t an impact when you go back and look at retail sales. Consumers would still be spending. They’re pretty comfortable as far as making spending decisions, regardless of the political climate and who is up in the polls.”
Among the more than two dozen speaker sessions at ICSC Las Vegas, those bound to attract the largest audiences are the ones focused on AI, repositioning troubled assets, raising capital, and best practices in negotiating leases.
Asked how AI relates to shopping centers, Cegielski replied, “The biggest use today is around marketing and promotion. That said, AI is a very broad topic and it’s a very new topic.” The industry hasn’t quite figured it out yet, she noted.
Also of concern is the expiration of the Tax Cuts and Jobs Act in 2025, which was designed to give tax relief to middle-income families and businesses, and spark increased domestic investment, though it’s argued that it generally favored the wealthy. The ICSC and Cegielski will be lobbying for the current provisions to remain. . And while traffic in the shopping centers and spending are holding up, consumer confidence retreated further in April. According to the Conference Board, it reached its lowest level since July 2022 due to concerns about jobs and business conditions in the future.
Leasing is always the major focus of the convention as well as developers introduce new projects and updating projects in the works to tenants. Citing some of the highlights of the convention, Cegielski cited a Monday session on “Innovative Perspectives to Transformative Insights” moderated by Naveen Jaggi, an ICSC trustee and president of JLL Retail Advisory Services, with Angele Robinson-Gaylord, ICSC vice chairman and senior vice president of store development for Starbucks in the Americas; Barrie Scardina, Cushman & Wakefield’s president of Americas retail services, agency leasing & alliances, and Tabassum Zalotrawala, an ICSC trustee, senior vice president and chief development officer, McDonald’s.
Keynoting the conference is Nick Saban, the sportscaster and former head coach of the Miami Dolphins, and former coach at Louisiana State University, Michigan State University, the University of Toledo, and the University of Alabama.
ICSC also planned a session on creative leasing approaches with Beth Azor, president, Azor Advisory Services; Julie T. Fox, senior vice president of leasing and development, Ashkenazy Acquisitions Corp.; Bill French, executive director, Cushman & Wakefield, and Natalie Pebbles, ICSC Next Generation trustee and director of real estate, Western Region, Jersey Mike’s Franchise Systems Inc.
In December, ICSC holds another big conference in New York City, which typically draws 10,000 to 12,000 attendees.
“Other than size, there’s not much difference between the two events. They are our two largest shows of the year,” Cegielski said. She added that ICSC also stages a number conferences on a more regional level. Through ICSC, she said, “There are multiple opportunities during the year to sign leases.”
