Guest Post by Matt Giffune, a co-founder at Occupier

Retail real estate has had a surprisingly strong performance in recent years. Real estate professionals should take notice of this trend and work to understand what they can do to promote that success for their retail clients. The answer lies in more than just the financials and available square footage – it’s truly about making end consumers the stars of the show.

Retail Sales and the Commercial Real Estate Outlook Are Strong

The question top of mind right now is unsurprising: Will the impending recession affect the commercial real estate market? Take some solace in 2022 data: The commercial retail real estate industry is doing well, and retail sales are key to that success. Consumer spending hasn’t slowed; in-store sales were up 13.7% in May 2022 compared to pre-pandemic levels. It’s important to remember that due to inflation, consumers are purchasing fewer items while spending more discretionary income.

To compete, retail stores must motivate customers and deliver beyond the basics. Retailers and real estate managers alike must discern consumers’ desires and needs continually. Successful real estate professionals will become expert retail consultants with insights into on-site design investments that will allow businesses to deliver on customer needs.

Retail Serves a Need for Connection and Experience

Nowadays, retail stores offer more than just a product – they have evolved from carrying as-needed goods to delivering experiences and community. Stores are offering classes and events outside the typical product array, specifically designed to drive consumer engagement. From in-person stylings or fittings to consultations and food events, retail location decisions are centered on the retailer’s ideal customer.

Without happy, paying shoppers, a brick-and-mortar real estate strategy crumbles. Many direct-to-consumer e-commerce brands are venturing into physical retail spaces to capture the in-person retail experience. Brick-and-mortar stores act as marketing channels, building brand affinity and community connections in ways online presences can’t. It’s crucial that real estate managers understand what’s driving retail decision-making so they can be the best consultative partners.

Retail Strategy Lessons Real Estate Professionals Should Know

1. Target audience is king.

The most important strategic element for any successful retail business is its customer base. Understanding consumer behavior and motivation is a foundational baseline, though narrowing on target audience specifics – age, location, spending habits, etc. – is where businesses can create value beyond selling goods.

Michaels craft store identified a need for crafty individuals to partake in educational opportunities to learn new techniques (and get out of the house). Across all retail locations, the craft store set aside physical classrooms to create these experiences. Any business looking to capitalize on the brick-and-mortar resurgence must consider how its customers’ needs for engagement and community will dictate site selection. Real estate professionals should be ready to answer questions on how various sites can meet those needs.

2. Branded experiences with room for expansion are important.

Branding is do or die, and businesses are keen on creating experiences that mirror their identities. Amazon Style has developed an omnichannel retail strategy where customers can scan QR codes and learn about available sizes and colors, read reviews, and select apparel to send to fitting rooms or checkout counters. The storefront itself serves only as a “try-on” destination. In the background, Amazon works to fulfill orders using its network, offering more options than a single physical brick-and-mortar location.

Businesses looking to deliver experiences like this should ensure they can expand to sites that have the capacity to deliver these unique branded experiences. Real estate professionals need to be able to consult with their clients about how sites fit their evolving needs.

3. Partnerships are pivotal.

Business owners should explore partnerships if they lie awake wondering which areas of commercial real estate have the most growth potential and where to put their resources. When selecting locations, retailers should look for nearby partners to amplify their products and experiences while creating mutually beneficial relationships.

For example, if a yoga studio wants to expand, it might look for a site close to a juice chain or coffee house to draw in foot traffic or co-promotion opportunities. Retailers can deliver more enjoyable experiences to their customers by strategically aligning their locations with potential partners. To make these decisions, businesses can look to their own data and real estate advisors to tell them what partnerships have performed the best and what sorts of co-tenants or surrounding organizations will contribute to success.

Commercial retail real estate has been a bright spot in the real estate world in no small part due to the resurgence of brick-and-mortar locations and their increased offerings. Business owners and real estate professionals should continue to study consumer behavior to know which sites can amplify business growth. By focusing on the connection between the business and the physical space, both parties can continue to drive this flourishing market forward.

Banner image by Heidi Fin on Unsplash

Matt Giffune is a co-founder at Occupier, a lease management software platform.