Cushman & Wakefield ChaneyBrooks

By Matt Schull

Change is Here

If you have walked into a shopping mall in the past year, it is apparent that things are changing. Big Box anchor tenants such as Macy's, Kohl's and J.C. Penney appear to be struggling to adapt to the ever-changing retail landscape, that is further confirmed by their tired looking stores. Malls across the country are starting to move away from the concept of department store anchored wings, surrounded by like-minded retailers. As consumer behavior changes, retailers are evolving to draw in the Millennial Shopper some more successfully than others.

 There are 80 million Millennials (those born between 1982 and 1996) in the US who spend $600 billion annually. That accounts for 28% of all daily per-person consumer spending, and is forecasted to increase to 35% of spending by 2030. The Millennial Shopper is the enigmatic consumer who is disrupting the retail scene and transforming the way we think about retail. While many traditional, brick and mortar retailers are struggling to draw in the Millennial generation, others have figured out how to use this disruption to their advantage.

 Welcome to Online Shopping

When discussing who has taken advantage of a shift in shopping habits, we should look no further than Amazon. This online behemoth has now taken a stronghold over the online shopping experience.  In the past ten years, Amazon shares have risen from $86 to over $1,100, and it is no fluke that Amazon has achieved incredible success. An ever-growing number of Millennials are now utilizing online shopping as an alternative to going into a brick and mortar location. 50% of millennials will do more holiday shopping on their smartphones and/or tablets than they will by making in-store purchases.

 What online shopping does so well is provide instant gratification. In a few clicks of a button you can find an item you want, read reviews from like-minded people, compare prices and have it delivered to your door. 59% of millennial shoppers, for example, say a nearby physical store is important to them when they buy products online. For many clothing retailers, creating the proper online shopping experience can be tricky. It is hard to determine if certain items will fit or look good when customers are viewing them through a computer screen. What the physical store location allows is an omni-channel presence- where online and physical stores are an integrated platform working together to fit different customer needs. At the end of the day, it doesn’t matter where the sale is made, as long as it’s made.

 The ease of online shopping allows consumers the convenience of shopping from their bedrooms, and plays an important role in the Millennial shoppers’ mentality. Contrary to some belief, Millennials are price conscious shoppers. Millennial frugality is not quite the same as their parents’ generation who were taught to value every penny. Millennials are willing to spend more money on products, but want to make sure they are getting the utmost value for their dollar. Value can come in the form of price, convenience or even experience. The internet has given us the ability to check and compare prices from countless online retailers with a click of a button. The ease in finding the best deal has converted this generation into value minded consumers almost by a default. There have always been multiple options for the consumer, now Millennials have figured out how to take in significantly more information before making their purchases.

 The Value Minded Customers

What further differentiates the value minded Millennial and their parents, is how the two groups value brand loyalty. Millennials outwardly claim to value brands they identify with. Many retailers spend millions of dollars to market their brand with an image they believe Millennials will choose to stand behind. What some of these brands tend to forget is that while image is an important first step, the overall “value” will ultimately decide how a majority of Millennials shop. Two thirds of Millennials say they are willing to switch brands if they are offered a discount of 30% or more. In many situations, the allure of savings is a draw too great to overcome. This is not to say that a strong brand message means nothing. Successful retailers are those who are able to combine both image and value into their message.

 Is Brick and Mortar Important?

With so much attention being paid to online sales, we can forget that Brick and Mortar locations are still an integral part of a brand’s success. Brands such as Warby Parker, Frank & Oak and Bonobos are perfect examples of retailers who in the past, exclusively sold their product online. In recent years, these retailers have started to roll out Brick and Mortar locations for the first time. Warby Parker, for example, views its physical locations as another asset to communicate its brand value. Often times these stores are designed with the idea of an experience in mind, rather than just a place to buy something. A website can only communicate so much about a product. Until technology progresses further, a physical store builds a brand presence that cannot be fully replicated by strictly e-commerce players.

 As previously mentioned, successful retailers are figuring out that Millennials crave value and experiential retail is one way to create that value. Millennials are demonstrating they are willing to pay more money for the right “experience” when they shop. When Millennials walk into a store, they don’t want to just browse for the goods they need. Millennials want to be able to connect with the brand and be entertained while they are doing it.

 Apple broke the mold when it introduced the Apple Store in 2001. For the first time ever, customers could walk into a store and touch, play and learn about the product in person. During the grand opening, hundreds of people lined up to take a look at the exciting new concept. This trend has continued for every new product Apple releases. People have become personally invested in the brand due to its ability to make shopping an event.

 Apple may have effectively targeted Millennial shoppers, but they are not the only retailer successfully creating an experience for their shoppers. Many grocery stores offer refreshments or free samples to customers. Retailers such as some outdoor outfitters even go a step further, offering lectures or classes to deepen customer relationships. Clothing retailers are building out high-tech fitting rooms that allow shoppers to see what an item of clothing would look like in different sizes or colors. Sporting goods stores are even building climbing walls and golf simulators that enable shoppers to get a feel for the equipment before they even leave the store.

 For those who think this is just a tactic targeted for a short-term gain, think again. Nordstrom just opened a brand-new store concept, Nordstrom Local. The usual 140,000 sf retail store has been cut down to a mere 3,000 sf. Nordstrom Local is a space where customers can come in for a manicure, have a glass of wine, get alterations done and pick up online orders. Nordstrom local further evolved its retail strategy, by excluding any merchandise from being stored in the shop. Nordstrom local is showing us that a brick and mortar experience can be even more powerful than the clothing they sell. What Nordstrom is striving to achieve is a balance between their physical store and their online presence. All channels are integrated, and these new omni-channel companies erode the barriers between physical stores and digital platforms.

HONOLULU – The Hawaii market for retail and hotel has been and still is on an 8-year positive trend. Hotel occupancy, average daily rate, visitor numbers and visitor spending have all continued to rise – bringing more visitors now than ever to the state.  All four of these categories have set records for the past 6 years.  

Because hotels are at an all-time high and hotel rooms and airfare are relatively expensive, total consumer spending is lower on retail shopping.  With more of the visitor discretionary spending going to food, hotel and airline, retail shopping spending in Hawaii has been relatively flat.  What does this mean for the market?  Several things, mainly good.  The Hawaii market is strong, but the changes have retailers scrambling to regroup and reframe their marketing strategies.  

Airlines have been in the news lately, which will have a significant effect on the market.  Southwest Airlines coming into the Hawaii market means we’re going to have more seats to Hawaii, which, in turn, means even more visitors and tourism spending.  Japan Airlines brought back seats to the Big Island as of last month, which opens up another growth and expanding market on that island.

Even with these significant growth impactors, retail, by in large, is still under a lot of pressure to understand consumer patterns and respond to change.  Younger generations are clicking and buying, which has had a huge impact on the market.  Retailers globally are trying to differentiate where and how they connect with their consumers.  The focus has hugely been on street shops where they can fully define their brand, wholesale through department stores, and online.  Every brand is trying to determine how to move forward in this market and there’s a lot of uncertainty.

Nationally, the 3rd and 4th mall in each market is under a lot of pressure and losing tenants quickly.  “Hawaii seems to be much healthier in both resort shopping and neighborhood center shopping in comparison to the rest of the United States.  We see the resident side of the market staying strong, as long as construction jobs stay strong,” reports Andy Starn, Retail Market Specialist with Cushman & Wakefield ChaneyBrooks.  The construction industry is being defined by tourism, which creates almost full employment, supporting the economy statewide.

“We believe that the tourism of Hawaii will continue to grow for several reasons,” says Starn.  “The hurricanes that have, unfortunately, devastated other destinations may add benefit to our economy in terms of increased visitors from those markets.  The geopolitical uncertainty and instability internationally, and Hawaii being part of the United States, continues to maintain it as a safe destination.”

With the continued influx of visitors to Hawaii and expectancy of certain growth coupled with retailers uncertainty of the future poses interesting questions for the state of the Hawaii market. Although there is uncertainty, what this means to commercial real estate in Hawaii is that property values and lease rents continue to increase at unprecedented levels.  Property values are increasing, and cap rates are shrinking because our economy is so strong.  Although residential and visitor markets are strong; lease rents are only expected to increase in the best properties or best locations.  Property values across Oahu have gone up, driven by competition as everybody wants the best Hawaii properties.  Joe Haas, Managing Director of Cushman & Wakefield ChaneyBrooks explains, “Hawaii is unique in that it is a tertiary investment market, but we are also a gateway market for Asian investors and Asian money.”  Starn elaborates, “Hawaii may be a tertiary market, but it has the 5th strongest retail street (Kalakaua Avenue) and the 10th strongest mall (Ala Moana Shopping Center) in the country.”

The strength of Hawaii’s market is evidenced in recent transactions, such as the Mirae and KSL purchases.  The Korean company, Mirae Asset, purchased the Hyatt Regency for the 6th highest purchase price for a hotel property in the United States ever.  Denver-based KSL Capital Partners, LLC purchased the Outrigger business for an undisclosed amount, but was definitely a significant purchase for both retail and hotel.

The state of the market is shifting and evolving but retailers stay poised to adapt quickly, investing more money in marketing and market research than ever in an effort to stay at the top of their game.  Haas shows his optimism, “Overall, we expect the market to continue to rise in the prime tourism markets and for the high-quality assets to grow drastically.” The overall effect of this on the Hawaii economy is expected to continue to be positive.

by William Elliott

Hipsters are reshaping the ghettos and what has been known as the “undesirable” part of towns, making them the latest cool trend.  We’ve all heard of the Pearl District in Portland and the Mission District in San Francisco.  Well, the west coast doesn’t have anything on Hawaii as our own hipsters have built up their own districts in areas like Kakaako and China Town.  

Trendy has a new name and its Cool Streets. In today’s day and age, it pays to be part of the current trends. The likes of social media, lifestyle and convenience have begun to shape neighborhoods around the country with rapid progress. As this trend continues to develop, it begs the question, how is this happening so quickly and where did this resurgence come from? In a series of upcoming articles guided by the research done by Cushman & Wakefield, the leading global real estate services firm, we will break down this transformation around the country and how Hawaii is and will continue to define what that means to everyone who explores the islands. We will also define how we can for one of the first times in our history, begin to curate a lifestyle experience that has not existed here on the islands.

Allow me to introduce to you Cool Streets. This isn’t Main Street or High Street, but Cool Streets. Let me explain. We’ve all experienced “cool” things such as a new restaurant or bar or even events like First Friday. Some of us have traveled to New York to the SoHo District or walked around the streets of LA or San Francisco. Everyone has a different definition of “cool” and yet if you ask the average person to define it, you’ll probably get some vague answers or very specific experiences. There is a growing segment of the population that is involved in the business of being cool and it’s getting larger. These are the areas of town that serve as an incubator environment where the hottest new retail concepts are born.

Cool streets are true to the authenticity and intention. The only way to survive and thrive in these areas is to be true to yourself and your brand. The consumers in these areas are attracted to original thought, personalization, crafting experiences and sharing their lives on social media. These are the artists and artisans. The individuals who challenge the norm and status quo to create their own standard of living based on their interests, not what Main Street media is projecting. These are the creators, the individuals who choose to make their own path and share their products and services with the world in their own special way.

Retail is a reflection of culture. What you see today is a result of market disrupters ranging from the new kid on the block to established companies that once started out as the eccentric, odd man out in the room. Think of Apple, IBM and Amazon. During their formative years, they were counter culture companies that were focused on out of the box thinking with a desire to bring in a new wave of thought and innovation to the market. These brands were once so far from the norm, they were easily dismissed. Now, you can’t even get out of bed without using a product or service from either of these companies.

Fast forward to today’s retail and lifestyle landscape. This resurgence of otherwise overlooked areas have become revitalized due to the presence of Millennials. According to the Urban Land Institute (ULI), 46% of Millennials would prefer to live in an urban setting, compared to 24% for suburban and 30% for rural environments. This corresponds with U.S. Census Bureau statistics that reflect the increasing urbanization of America; between 2000 and 2010, the U.S. urban population grew by 12.1% compared to an overall growth rate of 9.7% for this same period. The most recent Census estimates indicate that urban growth outpaced suburban growth in 33 of the 51 largest U.S. cities last year.

Millennials are at the center of this trend. In its poll, the ULI found that Millennials consistently ranked a number of typically urban community attributes as preferences —and did so at numbers that far outpaced averages for other age groups or all age groups together. Walkability ranked as important for 54% of Millennials, compared to 50% for all adults. Convenient public transportation ranked high for 39% of Millennials, while only 32% of the overall population saw this as critical. Meanwhile, 44% of Millennials ranked access to shopping and entertainment as one of their top priorities compared to just 36% of Generation X-ers and 43% of Baby Boomers.

But there is evidence that the trend of urbanization is starting to slow. The Census Bureau estimates that this trend peaked in 2011 when 26.7% of U.S. population growth was focused in urban areas. Last year, estimates put this number at 20.0%. Affordability is the likely culprit of this decline. Our tracking of apartment rents for Downtown or Prime CBD markets across 16 top U.S. markets between 2010 and 2015 indicates an average increase of 33.2%.