As many consumers shift their preference from spending on mainly goods to spending more on entertainment and experiences, today’s successful retail destinations are employing omni-channel marketing, diversifying their tenant mix and choosing more service-oriented concepts. In short, shopping centres are becoming consumer centres—more plugged into the converging digital and physical realms, more accommodating of changing shopping behaviours.
Although retail overwhelmingly remains the primary driver to shopping centres, serving consumers by including non-retail tenants, such as food and beverage services (F&B), leisure, medical and dental services, fitness and spa amenities and a wide range of other educational, cultural and entertainment facilities, is an important and fast-growing trend.
Retail real estate landlords increasingly recognise that when considering leasing strategies, they need to look beyond simply the highest revenue-generating tenants and actively curate a tenant mix that supports and connects with the needs of the local community.
In May this year, ICSC Research surveyed the members of its global research advisory groups in AsiaPacific, Canada, Europe and the U.S. to investigate the changing share of shopping centre floorspace allocated to non-retail uses and the benefits that these occupiers can bring to retail real estate landlords.
Non-retail tenants represent a growing share of shopping centres floorspace
Figure 1 – Average Share of Shopping Centre GLA by Tenant Type
Source: ICSC Global Research Advisory Group Survey, May 2018
The survey revealed that although retail tenants are expected to remain the dominant use in shopping centres in 10 years’ time, the allocated share is set to fall by an average of 16 percentage points (pp.) globally, down to an average of 56% of total shopping centre gross leasable area (GLA). This downward trend is predicted to be most evident in the U.S. where the retail industry is going through a period of readjustment following a number of retailer administrations, particularly in the department store sector, and landlords are seeking to fill the vacant space, often large anchor units, with other uses. (See Figure 1.
Over the same period, the proportion of floorspace occupied by F&B services is expected to increase to almost a quarter of total shopping centre GLA on average globally – a rise of eight pp. There are regional variations, with the Asia-Pacific (APAC) countries currently way ahead of the other global regions with over a fifth of total floorspace dedicated to F&B. However, in 10 years’ time Europe and, in particular, the U.S. are predicted to expand the share of F&B floorspace at a faster rate than AsiaPacific and therefore begin to catch up with the levels seen in APAC.
Despite the recent industry focus on expanding F&B services, in the next 10 years the ‘other services’ category is expected to increase by a greater margin. The allocated share of other services is predicted to grow by 10 percentage points on average globally, accounting for over a fifth of shopping centre floorspace in 10 years’ time. In the U.S. and APAC, this figure is forecast to be even higher at almost a quarter of total shopping centre GLA.
Non-retail tenants are an important driver of footfall and dwell time
Figure 2: Non-Retail Tenant Benefits for Shopping Centres
Source: ICSC Global Research Advisory Group Survey, May 2018
When considering the benefits of non-retail tenants to shopping centres, survey participants agreed that supporting rental income is not the primary purpose of these occupiers, although there were some regional disparities between what are considered to be the most beneficial factors. (See Figure 2). Looking at the global average, however, the most valued benefits of non-retail tenants were revealed to be increasing visits and time spent at shopping centres, as well as improving vacancy rates, which was seen as a valued benefit in APAC and the U.S. in particular.
Future places – live, work and play
‘Placemaking’ – creating an environment where people want to visit and return to – has become an industry buzzword However, if shopping centres are to broaden their appeal as consumer destinations and not just shopping locations, they must indeed become fully multi-functional venues with a wide range of occupiers and uses – places where individuals from all walks of life can come together to shop, dine, socialise, learn, teach, volunteer, be entertained and much, much more.
Beyond simply enhancing the tenant mix, though, many retail real estate developers are creating fully mixed-use properties where people can live, work and play. These projects often include one or more of the following elements: offices/co-working space, hospitality, residential and common space. The resulting synergy represents an important opportunity for a collection of tenants and uses that thrive from their collaborative success.
Sarah Cole is the Manager of International Research at the International Council of Shopping Centres.
