Retail Real Estate Industry: Past, Present and Future MSCA 30th Anniversary Celebration
Mike Kercheval Past President & CEO, ICSC Executive Director CU Real Estate Center, Leeds School of Business University of Colorado – Boulder
Oak Ridge Country Club Hopkins, MN October 3, 2018 The Mall is Dead Long Live the Shopping Center
MSCA - 2 Agenda
I. A Retail Primer II. Macro and Micro Trends Impacting The Shopping Center III. Long-term Factors Driving the Future IV. What’s Happening Today V. The Future of Retail
MSCA - 3 Real estate by accident
• CU: BA Economics, Pol. Science, Intl. Affairs (MCBD) • Columbia: MA; PhD (abd) Economics (Urban Economics and Public Finance) − “Maximizing Social Welfare In Boomtown Environments; Debt vs. Tax Financing of Infrastructure and Public Goods/Services”
MSCA - 4 Economist
Equitable Life Assurance Society
MSCA - 5 Bon jour
French Insurer To Put $1 Billion Into Equitable: Axa Buys Stake in U.S. Firm … New York Times Published: July 19, 1991
MSCA - 6 MSCA - 7 Cono Sur
MSCA - 8 MSCA - 9 What’s a Shopping Center?
The Retail Primer
MSCA - 10 Shopping Centers - Why
Agglomeration Effects Firms benefit by locating near each other ('agglomerating') Relates to economies of scale
Hot Dogs Hot Dogs Hot Dogs Auto Plant
Hot DogsHot DogsHot Dogs Steel Mill
Beach Iron Mine Coal Mine
MSCA - 11 Food Carts – New York City
MSCA - 12 “Shopping Malls”
MSCA - 13 14 Shopping Centers - Defining Characteristics
1. Single management and (usually) ownership 2. Retailers selected and managed as a unit 3. Site serves a particular trade area 4. One or more structures of a unified architecture 5. Delivery facilities separated from shopping area 6. On-site parking
MSCA - 14 Shopping Centers - Defining Characteristics
1. Single management and (usually) ownership 2. Retailers selected and managed as a unit 3. Site serves a particular trade area 4. One or more structures of a unified architecture 5. Delivery facilities separated from shopping area 6. On-site parking 7. Only sector requiring full alignment with tenant
MSCA - 15 Southdale Center
MSCA - 16 Shopping Center Types
• Neighborhood shopping center • Community shopping center • Regional shopping center • Superregional shopping center • Other: − Outlet Centers − Airport/Rail Station Retail − Resort Retail
MSCA - 17 Retail Space Markets - Freestanding Retail
MSCA - 18 Retail Space Markets – High Street
MSCA - 19 Neighborhood Centers Walkable GLA: 30,000 – 100,000 s.f. Trade Area: 1.5 - 3 miles
The Village Shopping Center Ideal Market
Lucky’s Market
MSCA - 20 Community Centers Grocery Anchor GLA: 100,000 – 300,000 s.f. Trade Area: 3-5 miles
Meadows on the Parkway (Safeway) Crossroad Commons (WholeFoods) Table Mesa Shopping Center, 1961 (King Soopers)
MSCA - 21 Regional Centers Anchors GLA: 300,000 – 750,000 s.f. Trade Area: 5-10 miles
Superior Marketplace 280,000 s.f. Net Twenty Ninth Street 847,000 s.f. GLA
MSCA - 22 Superregional Centers Destination GLA: 750,000 – 1,500,000 s.f. Trade Area: 50+ miles
Cherry Creek Mall 1,032,000 s.f. GLA
Flatiron Crossing Mall 1,431,000 s.f. GLA
MSCA - 23 Mega Malls (Super-duper Regional Centers) ???
South China Mall 9,600,000 s.f. GLA
Dubai Mall 5,400,000 s.f. GLA
MSCA - 24 What’s Going On In The Shopping Center Sector?
MSCA - 27 No Where to Go But Down?
MSCA - 28 We’re Dead Time Magazine July 20, 1998
MSCA - 29 Retail Sales – Total Quarterly SA $ Millions 1,400,000
1,300,000
1,200,000
1,100,000
1,000,000
900,000
800,000
700,000
600,000 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 30 Retail Sales – Growing E-Commerce Share Quarterly SA $ Millions 1,400,000 Brick & Mortar 1,300,000 E-Commerce 9.6% 1,200,000 Total
1,100,000
1,000,000
900,000
800,000
700,000
600,000 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 31 Retail Sales – Food & Beverage Growth
$Quarterly Millions, SA Monthly $ Millions SA 1,400,000 Brick & Mortar E-Commerce Total 60,000 1,300,000450,000 55,000
1,200,000 Retail Sales Less Food Services 50,000 400,000
1,100,000 Restaurants and Bars 45,000
350,000 1,000,000 40,000
900,000 300,000 35,000
800,000 30,000 250,000 700,000 25,000
200,000600,000 20,000 19971999 19992001 2001 2003 2003 20052005 2007 20092009 2011 2011 2013 20132015 20152017 2017
MSCA - 32 More Good News?
MSCA - 33 Retail/Shopping Drivers Positive
MSCA - 34 Real GDP Growth Quarterly SAAR 7.0% 7.0%
6.0% 5.0% 4.2%
5.0% 3.0%
1.0% 4.0%
-1.0% 3.0%
-3.0%
2.0% -5.0%
1.0% -7.0%
0.0% -9.0% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 35 Unemployment Rate
Percent, Monthly SAAR 11.0
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 36 Feel Good Index - Consumer Confidence + Home Prices
C-S Home Prices (2000=100 Left) UMI Consumer Sentiment (1966=100 Right)
200 110 Case-Shiller Home Prices University of Michigan 100 175
90 150
80
125 70
100 60
75 50 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 37 Incomes – Real Per Capita DPI & Average Hourly Wages
$2012 Dollars, Monthly SA 44,000 $28.00
Average Hourly Earnings Index (Right Scale) 42,000 Real Disposable Personal Income (Left Scale) $26.50
40,000 $25.00
38,000
$23.50
36,000
$22.00 34,000
$20.50 32,000
30,000 $19.00 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 38 Stock Market Dow Jones Industrials, Daily Close 30,000 26,774
25,000
20,000
15,000
10,000
5,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
MSCA - 39 Household Net Worth Quarterly, NSA, $Billions $106,929 B
100,000 Equity Real Estate Excluding Real Estate
80,000
60,000
40,000
20,000
- 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 40 But…
There are some concerns
MSCA - 41 Inflation Rate - CPI
Percent, Monthly SAAR 6.0
12.0 Inflation Rate (Right Scale) 5.0 Unemployment Rate (Left Scale) 10.0 4.0
8.0 3.0
2.0 6.0
1.0 4.0 0.0
2.0 -1.0
0.0 -2.0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 42 Misery Index – Unemployment + Inflation
Percent, Monthly SAAR 8.0 Inflation Rate (Right Scale) 12.0 Unemployment Rate (Left Scale) Misery Index 6.0 10.0
8.0 4.0
6.0 2.0
4.0
0.0 2.0
0.0 -2.0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 43 Some Caution - Interest Rates and Oil Prices Oil Prices (WTI, Right) and Interest Rates (T-10, Left) 7.00 140 Interest Rates %/Year
Crude Oil Prices $/Barrel 120 6.00
100 5.00
$75.71 80 4.00
60 3.082% 3.00 40
2.00 20
1.00 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 44 Mortgage Rates 30-Year Fixed Mortgage Rate US Average Weekly Percent 9.00
8.00
7.00
6.00
5.00 4.54%
4.00
3.00 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
MSCA - 45 Home Prices Median New Home Sales Price $350,000 $323,100
$300,000
$250,000
$200,000
$150,000
$100,000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 46 Housing Starts
Thousands of Units, Monthly SAAR 2,500
2,000
1,500 1,282
1,000
500
0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 47 and…
Tenant “Rationalization” Continues
MSCA - 48 Tenant Rationalization 2018
Source: Fung Global Research
MSCA - 49 … But Not as Bad as Last Year 2018 Announcements 2017 Announcements
vs.
Source: Fung Global Research
MSCA - 50 Some Positives Longer-Term
MSCA - 52 U.S. New Development Is Down
MSCA - 53 Industry Focus on Creating the “Third Place”
Westfield Stratford City
TaiKoo Hui Guangzhou, China Phoenix Market Mall, Chennai
MSCA - 54 What About The Shoppers?
Where they shop When they shop How they shop
MSCA - 55 Dominant Factors
• Demographic Shifts • Technology
MSCA - 56 Demographics Gender Roles
Population Mix BEFORE I KNOW IT, THIS WILL ALL BE YOURS
MSCA - 57 The Boomers Emerging – Class of 1973 1968
MSCA - 58 The Boomers – The Last Summer 1973
MSCA - 59 The Boomers – College Grads 1978
MSCA - 60 The Boomers – Looking for Work 1983
Unemployment rate stood at its recession peak of 10.8%
MSCA - 61 The Boomers – Working and “Coupling” 1988
MSCA - 62 The Boomers – Family Creation: Class of 2010 1993
MSCA - 63 The Boomers - Echoing 1998
MSCA - 64 The Boomers – Baby’s R-Us 2003
MSCA - 65 The Boomers – The Next Generation 2008
MSCA - 66 The Echo Boomers – Class of 2010, Graduates 2013
MSCA - 67 The Echo Boomers – Working and “Coupling” 2018
Unemployment rate stands at post-recession low of 3.9%
MSCA - 68 The Echo Boomers– Household Creation 2023
MSCA - 69 The Echo Boom Echo? 2028
MSCA - 70 Gender Roles/Responsibilities Women Workforce: Participation and Unemployment Percent, Monthly SA 62 11 Woman Work Participation (Left Scale) Men Unemployment 61 10 Women Unemployment 9 60 8
59 7
6 58
5
57 4
56 3 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
MSCA - 71 Percent of All College Degrees; Female vs. Male 1966-2018 Boomers 1978 Echo Boomers 2014 Males 60% Females 56%
52%
48%
44%
40%
36% 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
MSCA - 72 Percent of Total U.S. Population With College Degree By Gender
35% Boomers 1978 Echo Boomers 2014 Males Females 30%
25%
20%
15%
10%
5%
0% 1940 1959 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
MSCA - 73 Delayed Childbearing
MSCA - 74 Technology Omni-Channel Mobile- Online Purchasing Commerce
MSCA - 75 Technology and the “Mall”
✓ Reaction ✓ Adaptation ✓ Integration
MSCA - 76 Reaction More Internet-Resistant Business • Entertainment • Services • Food • Food Halls • Unique Offers
More Social-Interaction Activities • Town Plaza Environment
MSCA - 77 Adaptation
✓ Technology Infrastructure • WiFi • Websites • Store Pickups/Returns ✓ Service Offer • Valet Parking/Concierge • Dwell-Time Enhancers: Seating, Ambiance
MSCA - 78 Integration
✓ Near-field Technology ✓ Eyeballs > Sales ✓ Traffic Drivers
MSCA - 79 Looking Ahead
MSCA - 80 What’s The Future of Retail?
MSCA - 81 Real Estate Sector is Huge and Growing
Global real estate = $217 Trillion, > (stocks + bonds)
$US Trillions
$200
$150
Equities
$100
$50 Debt
Global Global Global Real Equities GDP Estate and Debt 2015 Securities MSCA - 82 Capital Markets Needs
Market Capitalization $10.6 Billion Total dollar market value of a company's outstanding shares. Calculated by multiplying a company's shares outstanding by the current market price of one share. Value of Real Estate $20.0 Billion
MSCA - 83 Key Top-Of-Mind Industry Trends
• Technology and Locational Value • Socio/Demographic Shifts “Class of 1974/2010” • Environmental Stewardship Millennial Trends & Priorities Cultural Influences Gender Roles
Water Availability Carbon Footprint Global Warming Rising Shorelines
MSCA - 84 Technology and Real Estate – State of the Industry
Technology Real Estate
Appraisal/Valuation Titles/Codes/Permissions/Uses Census/Demographics/Psychographics Credit Analysis/Underwriting Acquisitions/Dispositions Leasing/Management
MSCA - 85 Technology and Real Estate – The New Look of Retail
I. Automation and Real Estate – Free Information • Titles, Appraisals • Listings, Brokerage
II. Amazoning of America and Virtual Real Estate • Retail/Logistics • Facilities/Support
III. Service over Space • Storage • Destination Tenanting
IV. Uber© World’s Share Economy • Work • Play
Morgan Stanley Says Google’s Waymo Autonomous Vehicles Will Have A Big Impact On Retail And REITs MSCA - 86 Technology and Real Estate – The New Look of Retail
MSCA - 87 Technology and Real Estate – The New Look of Retail
Malls open co-working spaces aimed at startups and large retailers
MSCA - 88 Technology and Real Estate – The New Look of Retail
MSCA - 89 Technology and Real Estate – The New Look of Retailing
MSCA - 90 Technology and Real Estate – The New Look of Retailing
MSCA - 91 … and Where is Retail Real Estate Headed? Destination Retail • Explore, Experience, Extraordinary! • Experiences • Long Dwell Times • Unique Commodities • Diverse Foods/Dining • Fortress Characteristics Expedition Retail • In Stock at Lowest Price/Best Value • Huge Selections TODAY • Huge Discounts • Huge Quantities • Superb Access • Great inventories Convenient Retail • Authentic …. We Will Take Care of You • Local Feel and Flavor • Frequent Visits • Dominant Service Component • Bistro, Café, Dessert Offer • Hang Out Place: Pub, Friends, Social MSCA - 92 … and Where is Retail Real Estate Headed?
TODAY
Alternative Uses • Great Residential Location • Superb Access • Community Connection • Public Amenities
MSCA - 93 Thank You
MSCA - 94