In a digitally connected world, it has become more and more relevant to provide customers of physical retail spaces with a reason to drop their smartphones, leave their homes and visit a shopping location. The task at hand goes far beyond the sheer availability of products at the right prize in the right size. Placemaking is the art of shaping such a special destination and making an emotional connection with the visitor during his on-site experience. The tools are manifold and range from friendly service personnel over music and events to food and beverage, and from intelligent space design to a contemporary look & feel. All this needs to accompany a community-specific retailer mix for people to choose their favorable shopping place.
We have crossed the point of overall market saturation with undifferentiated retail spaces a while ago. From today’s perspective, there are more than enough shopping places in and around our cities. Consumers and retailers have turned their attention to the most relevant ones and decided to ignore less attractive options. As a continuous trend, developers, investors and operators of retail spaces endeavor to right-size the retail share in their assets and seek to unlock valuable mixed-use synergies with surrounding uses.
The closure of some larger department stores in recent months in the heart of many inner cities leaves an important task for the real estate industry. Many of those properties will have to find a new purpose. Often, retail may still play an important part in their future reconfiguration. Local planning authorities, however, will be well advised to also support changing uses. Where developers, investors and users with great ideas come together, much-quoted inner-city regeneration projects can now be turned into reality as rare fillet plots have become available. It may require some planning time, though.
2023 certainly was an exceptionally tough year for the real estate sector. In the asset class of retail, key performance indicators have recovered in many places, which is positive. Nevertheless, the overall market sentiment still felt negative. It is always difficult to project when exactly a downturn has reached its bottom. From where we are today, it looks like we are almost there. Classic core capital is expected to remain on the sideline for another six months, or so. 2024 may thus become the perfect window to take advantage of mispriced assets and thereby lay the foundation for future outperformance. Real estate prices will go up again one day!
Steffen Hofmann
Steffen Hofmann is Managing Partner at ambas Real Estate GmbH, and Member of the ACROSS Advisory Board.
