Empire State of Mind – Recapping ICSC New York 2017

ICSC’s December New York Deal Making Conference is a major industry event. For commercial real estate professionals, retailers, and a host of service and product providers, the conference serves as a springboard to the new year.

This was my 25th New York Deal Making Conference in a row. Over the last quarter century, I’ve seen both the show and the industry evolve in remarkable ways.

This year’s event, which took place in early December at the Javits Convention Center, did not disappoint. Attendance broke records, exhibitors and attendees were active and engaged, and there was a noticeable uptick in energy.

Which trends had retailers, developers and property owners talking this year? Here are just a few of the most buzz-worthy discussion topics from the show floor:

The Amazon jungle
Over the last few years, we have coordinated more than 100 trade and national business media interviews at the show. A topic of discussion in every conversation was the impact of the internet and online giant Amazon on the future of brick-and-mortar retail. The direction of those conversations this year, however, shifted quite dramatically. Amazon was still being discussed, but this time the tone had changed.

Amazon’s acquisition of Whole Foods sent a clear signal to the industry that e-commerce and brick-and-mortar need to work together to present a platform that works for everyone–and that in the complex relationship between digital retailers and their brick-and-mortar brethren, it’s not an either/or situation.

There’s growing recognition that online and inline can be symbiotic, and can generate valuable synergy. Amazon clearly recognizes the need for an integrated approach, both in terms of product presentation and logistics.

Learning your ABCs
The sense of optimism in New York was tempered with some realism, as well. The clear consensus was that there’s no future for C malls as they currently exist. The word on the floor is that centers in great locations, even B and C malls, will live on–but they will need to take a dramatically different shape.

The top tier of A malls are going to be fine, and are expected to continue to perform well, but the simple fact is that they are not for sale. Anyone who is interested in acquiring/developing property is targeting B-malls in great locations, oftentimes with a redevelopment strategy that involves significantly reducing the footprint of the mall and then utilizing the newly created space to bring in other uses (multifamily, office, hotels).

This size reduction approach is an acknowledgement of the simple truth that there just aren’t enough tenants to fill a large B mall. It can still be a high-performing center, it just can’t occupy the same footprint. The handful of C malls that are salvageable will need to undergo even more significant changes.

In many cases, the highest and best use may not even be a mall at all: it might be residential towers, or an office and residential complex, perhaps with just a small amount of ground-floor retail.

The clear message from professionals on the ground is that the fundamental truths of the industry haven’t changed: great real estate is still great real estate. At the same time, however, the landscape has changed to the point where it’s a given that for B and C locations to perform, they need to evolve.

The net is grocery
Outside of the traditional shopping center/mall formats, there is a real appetite for strip centers, especially traditional neighborhood centers with primarily service/needs-based retail.

From restaurants to dry cleaners, owners and developers are continuing to look for and covet tenants that are largely “e-commerce proof.” The same dynamic is in play with grocery-anchored centers, which remain a strong and stable asset.

One caveat on the grocery front, however, is that certain markets are “over-grocered” (or at least close to the saturation point). It remains to be seen how it plays out going forward, but there was some sense that the grocery-anchored format that has been so hot for some time now may be entering a period of slower growth.

The next next thing
One topic of discussion that I think will become increasingly important going forward is the use of technology in retail and mixed-use design. There were lots of reporters asking about the “next-next thing”, and one fascinating example of that is taking place right now in Orlando, with Lake Nona Town Center (full disclosure: Lake Nona Town Center is our client).

The retail and mixed-use center of Tavistock Development Company’s 11,000-acre, 17-square mile master-planned mixed-use Lake Nona community, the town center project is currently under construction, and will eventually encompass 3.8 million square feet of retail, hospitality, dining, and entertainment.

Tavistock is partnering with Intersection–an offshoot of Google’s parent company Alphabet, through its urban technology company, Sidewalk Labs–to radically rethink the way technology can enhance the shopping center experience. By creating, from the ground-up, an environment that blends the physical architecture of brick-and-mortar spaces with cutting-edge digital technology, developers can potentially create new opportunities for tenants and new experiences for consumers.

Tavistock is just one of several developers planning years ahead when it comes to the role of technology. The best developers are thinking differently and not getting bogged down in the same old retail rules.

Not only does technology have great potential for new applications in parking, wayfinding, and operational efficiencies, but for fitness, wellness, and transportation, as well.

And creating this connected, responsive, integrated and engaging retail experience becomes that much more powerful when a single owner can leverage synergies between different uses–and can literally lay the groundwork for tech infrastructure that can be updated and upgraded as necessary in the future.

It’s exciting stuff, and that excitement and optimism was my biggest takeaway from the 2017 Deal Making event. Retailers and developers alike have been proactive with respect to right-sizing portfolios and streamlining staff over the last several years, and the general sense is that the industry is in a really good position going forward.

There is less fear of the e-commerce boogeyman, and more positivity about the future of an increasingly, experiential, tech-driven and connected brick-and-mortar development landscape.

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