Western Real Estate Business

SEP 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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www.REBusinessOnline.com Western Real Estate Business • September 2018 • 51 "One of the most interesting trends we're watching in malls and with big- box space is co-working," says Karl Thompson, project manager at CRE- Models. "I think malls in suburban markets have some great potential for the mixed-use play. Malls are being ex- panded to include residential compo- nents. With the added trend of office tenants moving in, it lends to neat mi- cro-ecosystems in certain markets that could have great potential to rekindle the community vibe malls once had." Savvy retail landlords aren't just sitting on vacancies left by Toys "R" Us, JC Penney, Sears and Macy's. In- stead, they're getting creative and repurposing these spaces. Macerich recently announced a partnership with co-working startup Industrious to backfill its retail spaces, while GGP and Unibail-Rodamco-Westfield have already utilized this strategy to diver- sify their offerings. "Other retail REITs like CBL Proper- ties are talking with co-working oper- ators as well, and we are seeing many big-box spaces being converted into conventional offices or call centers, if not co-working spaces," Thomp- son continues. "It's not unrealistic to envision a mall with WeWork spaces or large corporate offices that also in- clude dynamic daycare or children's museums in conjunction with a gro- cery anchor. Owners can also main- tain the inline tenants and restaurants to fill the lunch meeting needs for business and after-work errands for families all in one location." Be Efficient Retail owners like to run a tight ship, which can be difficult to do in a state with a shopping demographic that values excess. This task becomes ever harder when some of the "excess" these shoppers value includes free- use public spaces and complimentary programming. So, the smart ones are looking for other ways to trim the fat. This starts with parking. "The evolving nature of transporta- tion in California opens many chal- lenges and opportunities," Perkow- itz says. "With rideshare and public transit, do we need as many parking spaces at every shopping center? And, if not, what do we do with that sur- plus space?" Perkowitz notes that many Califor- nia shopping center owners are opt- ing to tuck their parking behind retail stores to create a pedestrian-friendly environment. Others are converting excess surface parking into other uses, such as medical office. This was the case at 8th & San Francisco, a parking garage in Downtown Los Angeles sit- uated between Staples Center and the Financial District. KTGY redesigned this structure, which now includes ground-level urgent care services, 560 parking spaces on six levels and a 20,000-square-foot office space on the top floor. "The garage features a screen of colored metal fins with integrated graphics that acts as a garage screen and a branding element for the proj- ect and the surrounding neighbor- hood," Perkowitz adds. "The re-use of existing parking provides the op- portunity to build on excess surface parking or to convert the ground floor of an existing parking structure to a retail use like we did at 8th & San Francisco." Energy is another area where own- ers are dialing back. The state already has strict guidelines that address envi- ronment, health and climate, such as Cal Green, but many are taking sus- tainable design a step further. "One of the most pertinent trends you're seeing in California's retail market right now is the trend toward all things green," Thompson says. "Things like LEED certification are be- coming more and more popular. These efforts can also be great for the compa- ny's public image and help with ten- ant relations. In many cases, they can even to add to the property's bottom line, thus boosting the overall value." Some of the most popular efficien- cy strategies involve solar panels, LED lighting, and complex IoT (In- ternet of Things) sensors and moni- toring systems, all of which Thomp- son believes can help contain costs over time. Another item weighing down costs in California is labor. The state's mini- mum wage is set to increase annually from January 2017 until January 2022 when it will eventually hit $15 an hour (it is currently $11 an hour). Though the program has drawn much specu- lation — especially among the retail crowd that is already losing share to online shopping — it is too new to determine the impact this might have on shopping center owners and retail operators. "The concern is that, eventually, you'll see retailers' overall costs rise in ways that do not bode well for sales because of the need to pass those higher costs along to consumers," Thompson says. "Will putting more money into retail employees' pockets offset all of that? California is running the experiment, so I guess we'll find out because researchers will certainly be tracking the results over the next few years." Though 2022 is still some time away, Thompson does note that there hasn't been a discernable impact on employ- ment — yet. "All that being said, California's unemployment rate as of June stayed at a record low of 4.2 percent, so Cali- fornia employers clearly haven't re- sponded to these increased costs by slashing their payrolls in dramatic fashion," he says. "That's one of the fears you'll hear expressed by oppo- nents of increases in the mandatory minimum wage." Plan Ahead Technology is clearly one area where efficiency reigns supreme. Complex IoT systems, automated software, hu- manoid robots, and virtual (VR) and augmented reality (AR) can reduce staffing, speed up big data analytics, and enhance marketing and leasing efforts. "California is a place that is respon- sible for a lot of technological innova- tions and is open to changes through the use of technology," Perkowitz says. "Because of the popularity of on- line shopping, we see changes in store design that make way for return/ exchange areas, experiential spaces and sometimes smaller overall square footage. We are more often incorpo- rating VR and animation services for our clients, using technology to help them to have a certainty of the design outcome. VR is also increasingly be- ing used to assist leasing efforts with flyovers and virtual walk-throughs." Thompson believes the state is at the forefront of many technologi- cal advancements, in both retail and KTGY Architecture + Planning sub-divided Courtyard at the Commons — once a single- use big box retail store — into three new tenant suites, reflecting the evolving trend in retail demand for smaller in-line shops rather than large single-use retail stores. 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