In the past four years there have been unique developments in every industry, and the same can be said for commercial real estate in Hampton Roads. Many small businesses and nationally traded companies alike have had to adapt to the ever-changing landscape of consumer patterns in this post-pandemic world.
Work from home policies and the dramatic rise of e-commerce services have left many traditional shopping centers in a precarious position as modern-day businesses grapple with the necessity of a brick and mortar store. The last four years have seen struggles on this front, but as 2023 comes to a close, retail properties within the commercial real estate sector seem to be settling into their new niche successfully.
For the 2nd quarter of this year (April-June), retail properties throughout Hampton Roads have experienced significantly low vacancy rates at 4.3%. This is in contrast to the region’s vacancy rate a year ago which sat at 5.5%. Better yet, it is much lower than the region’s historical vacancy rate which over the last 10 years averaged 5.9%. While some retail vacancy is still to be expected, many owners and businesses should start to see an increase in activity throughout shopping centers in the area.
Retail spaces still face challenges given decreased economic growth, inflation, high interest rates and increasingly high construction costs. Yet, undoubtedly, retail properties and more specifically retail developments are adapting to the ever-changing economic climate and seem to be thriving just fine. But how have they managed this?
One common theme has held true for many of the regions large shopping centers: redevelopment. Four years of increased vacancy and decreased consumer spending left many owners and developers concerned with how to re-vitalize their shopping centers. The most common solution has been redevelopment, to include total redevelopment and repositioning, the partial redevelopment of a property to accommodate new business types.
Total redevelopment is as straight forward as it sounds. A number of major shopping centers in the region have undergone or will undergo a total redevelopment in the near future. Pembroke Mall, Military Circle and MacArthur Mall are just a few examples of this, all with major plans to construct some form of multi-use lifestyle centers that focus on consumers ability to live, work, eat and play all within a walkable distance.
These types of centers differ greatly from the traditional single stack retail shopping center. If you wonder what these types of centers would look like, just take a look at a few of the region’s newest examples such as Summit Pointe in Chesapeake, Midtown Row in Williamsburg, and The Railyard in Norfolk. All of these developments are disrupting the traditional shopping center narrative by incorporating new users, vertical construction and efficient planning. This success is encouraging other developers to follow suit.
What about smaller shopping centers and retail strips that do not have the capacity to take on a full redevelopment? The majority of these properties have made it out of the woods and are doing fine in the bounce back from COVID-era closures and high vacancy, but how did they get there?
Most shopping centers found a solution in repositioning or more formally re-structuring portions of the center to eliminate unwanted vacancy for new users. This can consist of re-zoning properties to support new business types as well as the redevelopment of specific spaces to meet user’s needs.
Notably in the Hampton Roads region, we’ve seen this from the leasing patterns of two major use categories: gyms and medical facilities. Both of these groups found opportunities in large blocks of empty spaces in shopping centers that traditionally held grocers, discount stores and restaurants. Examples of these “new” retail users can be seen in every city in the region and include big names such as One Life Fitness, Planet Fitness, Sentara and Riverside Health.
However, this change was not limited to just national and regional companies. Drive by your local shopping center and you’ll notice a plethora of physical therapy groups, optometrists, primary care centers, dentists and fitness classes that were historically occupied by traditional retailers. It seems that repositioning has been beneficial for both owners and consumers. With the rise of e-commerce, many small retailers have found that they can survive online or with a much smaller physical footprint.
What does the future hold for retail properties in Hampton Roads? The outlook appears positive. Vacancy rates are decreasing, consumers are beginning to spend again and annual retail sales are projected to grow for the first time in four years given current GDP rates and consumer spending rates. As long as owners, retailers and developers adapt to changing economic conditions we should continue to expect a return to normalcy and perhaps more favorable conditions going forward.