Here’s what local CRE brokers are seeing in the retail, restaurant market
The Dayton-area retail and restaurant market slowed considerably in 2020 due to the Covid-19 pandemic, but local brokers are hoping for a rebound this year due to pent-up demand, vaccine rollout and a relaxing of certain restrictions.
After posting a loss of nearly 500,000 square feet during the first quarter of 2020, the Dayton-area retail market recorded three consecutive quarters of virtually no change in occupancy, according to a recent report by Colliers International.
Colliers reported the fourth quarter’s net absorption totaled 19,000 square feet, leaving the overall market vacancy rate unchanged at 10.6%. Community and neighborhood centers recorded negative net absorption equaling 26,000 square feet; however, the regional center, strip center and big box sectors combined to record a net gain of 44,000 square feet during the final quarter of the year.
Construction activity in the retail market remains limited across the region, with 34,000 square feet currently under construction.
The slowdown was felt throughout the Dayton region, leading to a decline in activity for commercial real estate brokers. Locally, companies like Apex Commercial Group didn’t execute as many retail and restaurant deals in 2020 as in year’s past.
“There just hasn’t been a lot going on other than everybody holding tight and trying to figure out what’s next,” Apex Principal Aaron Savino said. “It’s hard to make business decisions when you don’t know what the regulations are going to be from one month or even one week to the next.”
Danielle Kuehnle, director of new development sales and leasing for Oberer Realty Services, said activity last spring and summer came to a “simmer,” but picked back up in the fall. Though not a traditional retailer, Kuehnle said service-oriented businesses such as hair salons have the most potential for a quick recovery.
“The beauty, personal care and those types of businesses I think will stabilize and continue to thrive,” she said.
Kelly Gray, vice president of Equity Inc., partner/co-founder of Rapid Fired Pizza and Wiley’s Wings Tenders and Fries, and partner at Hot Head Burritos, said the pandemic accelerated the need for automation and online ordering/pickup. This is seen especially in grocery stores, as large companies like Kroger and Walmart are investing millions in automated systems.
Gray mentioned the new Kroger facility in Monroe, which is able to complete a 50-item grocery pickup in under six minutes with 100% accuracy.
“You’re going to walk into a grocery store to buy meat and fresh fruit, and that’s it,” Gray said. “You’re not going to pick up milk or canned goods — that’s all going to be automated. It’s really going to change the grocery store of the future.”
What this means for grocery stores and other retailers is less front-of-house staff; an increasing reliance on back-of-house automation; and more of a drive-through model where customers wait in their cars instead of venturing into stores. This will potentially lead to changes in the way bricks-and-mortar stores are configured.
“This curbside pickup model in all industries, especially food and retail, is going to change things,” she said. “Tenants will be asking landlords for more dedicated parking spaces or a reconfiguration of parking to have more spots right next to the building. Those are the types of things you’ll see really changing now.”
The curbside pickup and drive-thru model is something Gray believes will remain a staple of the retail/restaurant industry post-pandemic. In fact, Gray is telling her clients to invest in drive-through and pickup windows when establishing a new location, or to add them to an existing location whenever possible. She’s also walking the walk, as her newest venture with business partner Ray Wiley — Wiley’s Wings Tenders and Fries — was located in building almost exclusively because it had a drive-through window.
Interior decor also is changing, Gray said. At Wiley’s, part of the design was meant to function as partitioning between tables to allow the restaurant to seat more people while still maintaining social distance.
“Those are the types of decor changes you’ll see in the future for sure,” she said.
Despite the changing retail and restaurant landscape, a report from the National Retail Federation shows the majority of consumers (61%) say they still depend on physical stores being open to meet their shopping needs.
“Although the U.S. remains over-retailed in comparison to other major global economies, there will be a need for a robust network of stores for the foreseeable future,” according to Colliers. “Store closures were already underway and capitalism’s so called ‘creative destruction’ was weeding out underperforming and outdated competitors. Retail should emerge from this crisis stronger, leaner and more responsive to consumer needs.”
Additionally, brokers say there is pent-up demand for in-person shopping and dining once the pandemic subsides. This should lead to more foot traffic, sales increases and potentially expansions for restaurants and retailers that have the most success capitalizing on innovation and demand.
“There’s just so much pent-up demand now because people want to be out, especially with the weather starting to turn, so I think restaurants and retail are going to do just fine,” Savino said. “I also think companies are starting to see a light at the end of the tunnel, so they’re starting to focus on what’s next to grow their business. That’s the big difference we’re seeing now compared to before.”