Real estate and retail professionals alike have been heralding the death of the shopping mall for years now. With more and more shopping taking place online, landlords of shopping malls and shopping centres are finding traditional retail tenants to be less reliable. Instead, they are looking for new ways to anchor their spaces.
Table of Contents - Investing In Entertainment Retail
Innovative developers and entrepreneurs are discovering new possibilities for these large, emptying spaces: entertainment retail. The shopping mall infrastructure is well suited for entertainment activities such as movie theatres, arcades, mini-golf and laser tag. The future of the shopping mall appears to lie with experiential and entertainment retail.
From shopping to experiencing
Landlords are opting to focus on using entertainment retail to anchor malls and shopping centers instead of traditional department stores. Entertainment companies are discovering that not only malls but also warehouses and big box stores are ideal for launching new locations. These tenants can help to revitalize shopping centers and bring families into the area for an afternoon of fun and entertainment.
Part of the move comes from the fact that people still want community spaces where they can socialize. Consumers are happy to do most of their shopping online, but they still need a way to participate in their communities. Entertainment retail spaces can do just that.
To stay relevant, retail spaces will need to shift from being shopping-based to being experience-based. This includes not only adding entertainment retailers but also unique dining experiences like food halls and fitness spaces like gyms. Many commercial landlords are also adding programming and event space where visitors can hear from and experience local artists or participate in community activities like outdoor yoga classes. Pop-up shops and temporary experiences help local retailers find their customers while bringing foot traffic to other businesses.
One new venture that’s growing in American malls is capitalizing on the rise of esports. Entertainment companies are working to develop 2,000- to 3,000-square-foot spaces for live video game competitions. In a similar vein, virtual reality companies are also taking advantage of the trend to find spaces for their concepts.
Adapting for entertainment
While shopping malls have long been declared dying, reports show that Canadian shopping centers continue to thrive. The 2019 Canadian Shopping Centre Survey from the Retail Council of Canada (RCC) shows year-over-year growth at the nation’s top 30 shopping centers.
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What keeps these malls performing well – despite losing some major retailers – is their ability to adapt. They’ve redefined their spaces and found new tenants that keep shoppers returning to the mall. The top shopping centers in the nation have added destination entertainment centers that keep families returning. They are also adding new amenities like offices and condos on-site to further diversify the space. These strategies serve to enhance both the experience and community shopping malls once served in their heyday.
For the top malls in the nation, this strategy is proving successful. More than 100 international retailers have launched in Canadian malls within the past three years. Toronto’s Yorkdale Shopping Centre topped the RCC survey as the most productive mall by the square foot in 2019. If it sees even a 2 percent increase in 2020, it will set a new high benchmark for shopping centers in Canada when it surpasses $2,000 per square foot annually.
Repurposing existing malls
Commercial real estate landlords looking to reinvigorate their properties will need to rethink how they anchor their spaces. If no one is going to visit the anchor tenants, then they likely won’t be visiting the smaller retail tenants either, prompting them to vacate the space. Landlords need to be willing to try something new if they want their properties to survive.
Some commercial landlords are opting to accept any entertainment retailer who offers to take the space. These ventures are often done quickly, cheaply and ultimately not very well. Attempts to quickly reuse the space as-is means that it may not be used efficiently. These types of ventures require custom spaces to meet the needs of the activity, and a space that once held a department store may not always be ideal.
Instead, smart landlords are working to attract well-known brands and working together to develop a space that allows the business to thrive. Landlords are courting entertainment retailers with strong name recognition to be the new anchors at their shopping malls. So far this has seen mixed results; there is an increase in foot traffic, but it isn’t necessarily boosting sales for smaller retailers.
Other real estate entrepreneurs are scrapping the idea of entertainment retailers as anchors in favour of creating spaces that are predominantly entertainment-based. Instead of using entertainment as a lure to bring customers to retail clients, space is repurposed to become half (or more) entertainment space and half retail space. This development redefines what a “shopping” mall or center is in consumers’ daily lives.
If you aren’t a commercial landlord but are interested in investing in retail space for entertainment ventures, there are real estate investment trusts (REITs) that capitalize on this space.
EPR Properties (NYSE: EPR) is the leading experiential REIT, with 370 locations and more than 200 tenants throughout Canada and the U.S. EPR specializes in real estate venues focused on out-of-home leisure and recreational experiences. Experiential properties in the real estate industry include theatres, gaming, fitness and wellness, performance, playing and dining venues.
Another popular REIT in this space is Realty Income Corporation (NYSE: O). They specialize in freestanding, single-tenant properties with long-term, net lease agreements. They own a variety of commercial properties which include entertainment retailers as tenants. Three of their top 20 tenants are Regal Cinemas/Cineworld, LA Fitness and Lifetime Fitness. Locations are throughout the U.S. and U.K.
The way that Canadians spend their leisure time – and dollars – will continue to change. To keep up with the times, commercial landlords will need to adapt their spaces to fit changing consumer trends. Entertainment retail is an exciting way to anchor shopping malls and centers while capitalizing on the desire for community experiences.
Fitness, entertainment driving growth in retail real estate
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