Q3 2018 Houston Retail Research & Forecast Report

E-commerce continues to change the landscape of traditional retail

In today’s ever-changing economy, it is vital for traditional retail, especially those in the “soft goods” category, to recognize that the retail landscape is also constantly changing, particularly in the face of e-commerce. With this changing retail landscape, comes changes in the types of retail tenants and uses in shopping centers as a whole. However, often this requires cooperation between the landlord and its anchor or major tenant. And as a result, it has become important that traditional retail change its attitude towards “prohibited use” language.

A softening of prohibited uses or restrictions is often necessary to improve the health of a center, and contrary to traditional belief may ultimately be for the benefit of the retailer providing the relief. As we all know, the internet and e-commerce have changed how we shop and why we go to retail centers. Today, almost everything in your closet, pantry, refrigerator and most of your home electronics can be purchased online, and generally is. The shift in how we buy our goods and what we leave our homes to buy has led to the closure of thousands of under-performing stores, bankruptcies to electronics, apparel, shoe and other soft good retailers (most recently Sears/Kmart). Additionally, for those that have survived, there is now a movement towards shrinking of footprints, or “rightsizing,” and the consolidation/elimination of excess “brick and mortar.” The result has been large voids, increasing vacancy and loss of anchor tenants in many shopping centers.

Many of these vacancies are being absorbed by what is generally regarded as non-conforming service users (i.e., medical, entertainment, health and wellness, restaurants and schools, to name a few users). The problem for the landlord has often been that although these users represent the fastest growing categories in retail, many of these non-conforming users are prohibited by anchor and junior anchor tenants. Ultimately some uses can’t get into centers due to restrictions, and in other cases, it will require the consent of one or more tenant.

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