Commercial Property Gets Shakeup From Millennials Who Shun Stuffby
Experience-based retail will fare better, MetLife says
E-commerce poses a threat to brick-and-mortar retail
Landlords of retail properties should counter the threat from electronic commerce by turning to dining and entertainment to attract a younger generation of customers, according to MetLife Inc.’s asset manager.
Millennials have a higher “experience-to-stuff” ratio for their disposable income than members of the baby boomer and Gen X groups had when they were 24 to 35 years old, MetLife Investment Management said Thursday in a report. Those spending patterns have helped drive superior results in recent years at the more dynamic shopping locations, according to MIM.
Amazon.com Inc. and other online retailers have been winning market share, pressuring brick-and-mortar retailers such as Aeropostale Inc. and Sports Authority Inc. and their landlords. The Bloomberg index of regional mall landlords has gained 2 percent this year compared with a 5.9 percent climb in the broader Bloomberg Real Estate Investment Trust Index. Still, shopping locations can thrive when consumers find an attractive mix of stores, restaurants and entertainment, said Melissa Reagen, head of research at MIM for real estate.
“We’re very bullish that those retail centers will actually do quite well,” she said in an interview. Places “that can do all those things really well will be able to compete against e-commerce.”
MetLife, the largest U.S. life insurer, loaned $14.3 billion for commercial real estate last year, a company record, including $333 million to help refinance Taubman Centers Inc.’s Mall at Short Hills, a luxury shopping center in New Jersey. The New York-based insurer lends its own money and also oversees funds for third parties through MIM.
The money manager said it favors tenants that offer unique products or a high level of customer service. Apple Inc. stores stand out because staff can help customers navigate complex devices. And Lush Fresh Handmade Cosmetics attracts shoppers with private events and makeup consultations, according to the report.
Movies can also draw traffic. David Ownby, the chief financial officer of Regal Entertainment Group, echoed that sentiment in a May conference, citing the theater chain’s leverage with landlords in seeking improvements to facilities.
“Fortunately for us, typically we’re not a recipient of traffic, we’re more of a driver of traffic at mall or retail locations,” he said. “So we’re not always impacted by some of the retail sales numbers that you see, or declining traffic at malls in general. So that’s a positive.” His company’s stock has climbed 7.3 percent since Dec. 31.
Reagen said weekend farmers’ markets and live entertainment can help distinguish successful shopping centers. It’s also important that dining options be better than what she recalls growing up with in malls.
“Food is a huge driver at this point, but something a little more curated,” she said. “Something that is actually good.”