How will the current trouble in retail affect rental property investors? What smart moves can real estate investors make now?
The media headlines have been full of stories about how the US.. retail industry and property market is in trouble. CNN Money says, “There is a retail bubble—and it’s bursting.” The Atlantic calls it “The Great Retail Apocalypse of 2017.” America has 10x more mall space per person than countries like Germany. Consumer behavior is shifting more and more to shopping online and to spending more on experiences than material items; much of that store space simply isn’t profitable. Thousands of stores are being closed by big retailers like HHGregg, JC Penney, Macy’s, Sears, Abercrombie & Fitch, Guess, and more. How will it impact landlords?
The Impact on Jobs
One notable impact is the replacing of thousands of jobs. These types of store workers are one of the biggest groups of workers in the country. Most should be able to find other work nearby. Others will need to retrain and learn new technology so that they can work for themselves or invest in real estate to avoid losing their homes.
The shuttering of malls and strip centers can make an area appear less desirable. When you pull into a neighborhood and the local strip mall is covered with boards and completely vacant, that’s typically not a good sign. It makes it less appealing for future renters and home buyers. The opposite is also true.
Fortunately, retail property owners and developers have a couple of new trends to capitalize on. The first is experiential events. On Black Friday last year, many people went to the mall, not to buy, but to simply hang out. Once you are there, you typically end up spending something. So, investing in events and experiences can keep up mall traffic and support retail tenants. Mixed use developments are becoming more popular, too. Some of these old malls could be converted from straight retail to shopping and residential. With people living there, the mall would naturally be more trafficked.
Shopping for Rentals
One of the main takeaways from these trends is the shift in how consumers are shopping for everything. That applies to buying rental property and finding homes to rent as well. Savvy real estate investors will get out ahead of this curve. They will embrace finding deals online. They will make sure they are advertising where and when renters are looking for their next home. That will include online and mobile marketing, SEO, Google ads, and showing up on new smart home device searches like Google Home, Amazon Echo, Alexa, and Apple’s HomePod.
There is a lot of disruption ahead for all but the most innovative retailers and retail investors. Most investors will be wise to safely camp out in residential real estate in areas with stronger commercial centers nearby. Whatever you do, know your trends and run your numbers conservatively.
What do you think will be the fallout from the retail world disruption?