The game of retail is one without hard and fast rules.
It’s an evolving market, and it’s changing how business owners want to set up shop.
Real estate experts say there are several trends that are changing the demand of commercial square footage in the Springfield market, including the dominance of e-commerce, redevelopment opportunities and the need for less space.
The first-quarter 2019 vacancy rate for retail space in Springfield was around 3.8%, which has held steady the past few years, according to data from CoStar, a commercial real estate research company. Greene County currently has a 4.2% vacancy rate, up slightly from the 2018 second-quarter rate of 4%, according to additional CoStar research provided by the Springfield Area Chamber of Commerce.
In the Queen City, at least 85 retail spaces were available for lease by the time of publication, according to Springfield Business Journal research.
“We do see some vacancies scattered around the market, but with a market our size, we’ll have some sort of vacancy,” said Ryan Murray, CEO of commercial real estate firm R.B. Murray Co.
“We’re seeing some positive activity as things are stabilizing and people have adjusted to the new normal of what retail is like.”
Murray said he knows of a half-dozen retailers looking to enter the Springfield market, though it’s unclear whether they plan to develop or lease available space.
Mike Fusek, senior adviser at SVN Rankin Co. LLC, said the vacancies and developments in the area are part of the normal real estate cycle. He said that after an economic downturn, like the 2008 recession, the market goes through a recovery period, followed by expansion and oversupply.
E-commerce made up 14% of U.S. retail sales in 2018, according to research by Digital Commerce 360, a news and industry research website. Additionally, Amazon (Nasdaq: AMZN) made up 40% of the online retail sales nationwide, according to Digital Commerce 360.
The internet has changed how people buy products, which in turn, means retail is seeing a shift to service-oriented business, Fusek said. Think nail and hair salons, dental practices, restaurants or fitness centers – services that people can’t access through Amazon.
“It used to be that you had these small retailers that had shelves filled with products,” Fusek said. “Today, most retailers have a service component to them.”
Consumers are seeking more engaging experiences, according to an article by Forbes, which said that nearly 3,800 stores are expected to close nationwide by the end of 2019.
Following the trend of service-oriented retail, the Magers Crossing shopping center, at 2150 W. Republic Road, includes a barber shop, nail salon, yoga studio and restaurants. The center still has five spaces available for lease, according to listing agent Arch Watson of SVN Rankin Co. LLC. Watson declined further comment on the center’s listings, and developer Randy Magers of Magers Management Co. did not return requests for comment.
Magers also manages the Battlefield Marketplace, which has three spaces under 2,500 square feet for lease, according to the company’s website. Current tenants include Cookie Cutters Haircuts for Kids, Salon Service Group, Mercy GoHealth Urgent Care, Palm Beach Tan, Salon Truth, MJ’s Market & Deli and five restaurants.
The move to e-commerce also means a retailer really doesn’t need as much space for physical storage in a retail location. Murray said retailers used to utilize the front portion of a store for sales, and the back portion for storage and inventory. But business owners don’t need as large of an inventory in the store, he said, which is why long, deep strip malls are seeing vacancies.
“Now, you see the developments being designed around smaller spaces because the tenants can do a lot more with less space,” Murray said.
Nationally, vacancies are being spurred by a desire for smaller stores, relocations and rising rents, according to an article by Retail Dive, a news outlet that provides retail industry research. Also, stores like Ikea, Nike and Barnes & Noble announced plans in 2018 for small-format stores as experiments with location size, customer services and technology, according to Retail Dive.
Real estate agents say the old rule of thumb still holds true today – location, location, location.
James Tillman, owner of at least 40 commercial real estate properties with 90% occupancy, said he’s seeing an interest from business owners in leaving the traditional strip malls.
“What people are wanting now is the smaller centers close to the busy roads, not the long deep centers. I think those could be a problem at some point,” Tillman said.
There are at least two dozen strip malls or retail centers in Springfield, according to SBJ research. Strip centers in Springfield had an 8.6% availability rate, or the percentage of space available on the last day of the quarter, and 6.7% vacancy rate in the first quarter of 2019, according to research from CoStar. The vacancy rate is the amount of new, relet or sublet space vacant divided by the existing rentable space.
Tillman said he’s seeing a desire for more spaces like his development in front of the Battlefield Marketplace, where a Starbucks Coffee, Pie Five Pizza and Jersey Mike’s Subs are currently housed right off Battlefield Road.
“I call them the ‘patch spaces’ in front of a large retail,” Tillman said. “I think the older centers that are deep off the road … you can’t drive by them at 30 mph and notice what’s in the center.”
Tillman, who also owns Complete Electrical Solutions, has developed several retail centers and is currently building the THJT Campbell Strip Center. Tillman also brought the First Watch cafe franchises to Springfield.
Murray said the appearance of a shopping center also is playing part in Springfield’s vacancies. He said the design and aesthetic of new retail centers or those that have been redeveloped are seeing full capacity, noting the newly redesigned Brentwood Shopping Center as an example.
“Oftentimes, we’re seeing challenges in older strip centers that haven’t been updated,” he said.
After months of delays, construction is moving along for an assisted living center at the Creekside at Elfindale.
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