The retail real estate industry is undergoing a permanent change, driven by a shift in consumer preferences and the excessive amount of retail space per person in the U.S., according to the attendees of ICSC’s RECon 2017 show in Las Vegas.
While the floors of the Las Vegas Convention Center were filled with activity on Monday, the prevailing mood at the show was one of caution on multiple fronts, including leasing, investment sales and development.
Here are some takeaways from day one of RECon.

1. E-commerce is not the only culprit responsible for the recent spate of closings and bankruptcies in the brick-and-mortar space. The other culprit? Boredom, according to Michael N. Hirschfeld, managing director and co-lead of the national retail tenant services group with JLL. Many of today’s mall tenants are not offering consumers a compelling enough experience to shop at their stores, Hirschfeld said. U.S. apparel retailers are not differentiating themselves with their merchandise, added Tom P. Mullaney, managing director and co-lead of Jll’s lease and debt restructuring group. The main way to tell them apart is “by the discount. Whether it’s 20 percent, or 30 percent or 40 percent.”
2. The changes in the supply/demand equation in the regional mall space are not cyclical, but secular, and are going to impact the business for years to come, noted Thomas E. Dobrowski, executive managing director in the capital markets group of real estate services firm NGKF. “It’s not going back to how it was,” he said. A lot of today’s struggling malls need to be either re-positioned or redeveloped into something else, which can be a challenging, multi-year process if the mall’s anchor spaces are owned by the department store operators themselves and not by the mall owners. Dobrowski, who noted that distressed malls are selling for anywhere from 60 cents on the dollar to 10 cents on the dollar, estimates it will be another five to seven years before the issues in the regional mall space are fully resolved.
3. The pool of private investors and 1031 exchange buyers interested in retail properties has shrunk in the past nine months, according to Rick W. Chichester, president and CEO of brokerage firm Faris Lee Investments. The 1031 exchange buyers in particular are now concerned predominantly with the preservation of capital and the retail sector feels too risky for them. “Values have changed a bit because of that. Cap rates are flat, or increasing,” Chichester noted. He estimates the increase has been in the 25 to 50 basis points range.
4. There is currently a bid/ask gap in the investment sales market for retail, according to Aaron Schoen, vice president, finance, at Starwood Retail Partners. Starwood’s team has looked at potential acquisitions in the regional mall space recently, but the firm and the sellers could not agree on a price that was satisfactory to both parties. “We were pretty far apart,” Schoen said. “They were not bad centers, it’s just kind of where we are at” in the cycle right now.
5. Spencer Levy, Amercias head of research for real estate services firm CBRE, insisted that property fundamentals in the retail sector overall are much stronger than the negative “chatter” would suggest. As a result, Levy expects to see pricing on grocery-anchored and open-air centers to bounce back within a relatively short period of time. “There are pockets of weakness,” he noted. “Part of the opportunity today is to exploit the weakness by exploring buying in strong secondary markets. I believe there will be a snap back.”
6. What investors may want to keep in mind is that this is not a good environment for novices, said Adam Ifshin, founder and CEO of retail owner and operator DLC Management Corp., during a panel organized by brokerage firm Marcus & Millichap. Today’s retail tenants are disciplined and have choices of which centers to go into. That means that property owners have to be very careful about setting rents at the right levels to make their centers profitable. “This is not a time for newcomers,” Ifshin said. “You have to know what you are doing.”
7. Hessam Nadji, CEO of Marcus & Millichap, summarized current market conditions this way: “Massive retail opportunities ahead, with a chance of disaster if you are not careful.”