This post is sponsored by RPAI.
Retailers are constantly changing their strategies to meet shifts in consumer demands and changing needs from physical stores. And where these spaces are located is becoming increasingly important as they compete in a crowded environment.
In this second post in our two-part series, we talk with RPAI’s Maria Toliopoulos, senior vice president and director of national retail leasing and services, about the changing nature of RPAI’s portfolio and how it’s better serving customers and retailers.
Question: Can you tell us about your location strategy for shopping centers?
Maria Toliopoulos: RPAI is focused on owning multitenant retail centers in 10 to 15 key markets, with approximately 3 million to 5 million square feet in each market. We believe our scale is large enough to be relevant to our retail partners and the capital markets, while also allowing us to optimize our local and regional operating platforms to achieve economies of scale. So far, we have announced 10 of those markets: Atlanta; Austin, Texas; Chicago, Dallas-Ft. Worth; Houston; New York; Phoenix; San Antonio; Seattle; and the Washington and Baltimore area. Our target markets have well-diversified local economies and strong demographic profiles. They have significant long-term population growth or above-average density, along with relatively low costs of living. We’re also looking for highly educated employment bases and strong barriers to entry, whether driven by topography, regulations or density.
Q: How can these locations take advantage of changing trends in the market?
MT: As more retailers embrace same-day delivery and buy online, pick up in store (BOPIS), as well as new ways to capitalize on technological advancements, retail centers in communities with strong demographic profiles will be the locations where new and emerging concepts and retail trends are first tested and used to enhance overall shopping experiences. RPAI believes in owning centers with long-term growth potential in the hub of innovation, which will keep our properties relevant and ready for continued growth.
We are seeing a continued focus by retailers to partner and collaborate with nonretail partners to provide consumers with experiences that are more efficient yet still feel intimate. For example, some are using geofencing technology, such as RFID technology, to better track merchandise from manufacturing to point of sale, which allows the store to double as a retailer’s distribution center. Others are offering “convenience services” such as Deliv and Uber, which is expanding into same-day delivery service through UberRUSH.
Q: What is your current tenant mix and do you see that changing in the near future?
MT: Over the past several years, we have continued to reduce our exposure to tenants on our “watch list,” in addition to becoming more diverse. Today, our largest tenant represents approximately 3% of our retail ABR. With this type of diversity in our retailer offerings, we can limit exposure to any one retailer or category. Our largest tenants include restaurants, apparel and accessories stores, and discount department stores. In addition, more than 40% of our multitenant retail properties are anchored or shadow-anchored by a traditional grocery tenant, with grocer sales of approximately $530 per square foot. This is a category that still has significant demand driven by convenience and necessity even if affected by same-day delivery services or curbside pickup.
Although online shopping continues to be a challenge for mall and strip center owners, studies have found that 95% of all retail sales involve a brick-and-mortar store, 67% of consumers who purchase online use the store before or after the transaction and 70% of online consumers live within a physical store’s trade area. In addition when picking up an online order from a store, 23% of consumers actually purchase more items. Therefore, as a company, we believe it is vital to focus on traditionally “Internet-resistant” retailers such as local stores, as well as chef-driven restaurants, true bargain-hunting soft goods retailers such as the TJX Companies and Nordstrom Rack, service categories such as Great Clips and Massage Envy, home improvement categories such as The Home Depot, and specialty and fresh grocers such as Trader Joes, Sprouts and Fresh Thyme Farmers Market.
Q: What is the strategy for changing the portfolio mix (i.e. acquisitions? demographics?)
MT: As part of our 10- to 15-year market strategy, RPAI aims to acquire multitenant retail properties with strong, long-term embedded growth, as well as redevelopment/densification opportunities, and sell multitenant retail assets in non-target markets, single-tenant retail assets and our last remaining office asset. By focusing on fewer markets, our team can closely monitor individual asset performance and investment activity. We track best-in-class assets within each target market for potential acquisition opportunities, which allows us to make efficient, effective decisions and spend our time focusing on potential acquisitions that are the right fit.
Once our team has targeted a new asset for acquisition, every discipline in the organization, including our local teams, is involved in evaluating the property, finalizing the business plan and underwriting assumptions on the acquisition.