What's ahead for the retail real estate industry in 2015? Buxton interviewed clients, industry executives, and our own experts to find out. Read our report to learn more about the state of the retail real estate market, competition for retail space, retail real estate trends, and hot markets for growth.

1. 2015
RETAIL REAL
ESTATE OUTLOOK

2. The recovering retail sector drove vacancy rates for neighborhood
and community shopping centers down to 10.3% in the second
quarter of 2014, according to ReisReports’ October report on
retail market trends. While vacancy rates vary widely across
markets and property types, ReisReports notes that the national
vacancy rate has declined 80 basis points from its historical peak.1
Strong investment activity is expected to further drive down
vacancy rates in the coming year, while projected corporate
profit growth of 4.1% in 2014 will provide the necessary funds
to fuel expansion efforts.2
Also as banks lend more freely and
foreign firms seek opportunities to invest in U.S. retail projects,
access to capital is gradually becoming easier. Likewise, private
equity firms are trying to capitalize on the strengthening retail
real estate market by continuing to increase their already heavy
investment activity in 2015.3
This steady influx of capital is significantly raising prices for retail
real estate. In fact, prices for retail properties grew the most
among the four major property types with growth of 15% over
the 12-month period ending in September 2014.4
Despite all the positive signals of a recovering retail real estate
market, there is a sense of caution in the commercial real estate
community with PwC noting, “While hunkering down for an
apocalypse is not a widespread strategy, and certainly not a
trend, a concern for capital conservation is clearly abroad in the
marketplace.”3
2014 was a whirlwind year for retail. As the economy continued to pick up steam, retailers across the U.S.
sought expansion opportunities, driving down vacancy rates while simultaneously driving up prices.
What lies ahead for the retail industry in 2015? Will these growth trends continue, returning retail to its pre-
recession highs? Buxton interviewed leading industry experts to find out.
State of the Retail Real Estate Market
OPEN OPENOPEN OPEN OPEN OPEN
15%
Increase in prices of retail properties

3. Competition for Retail Space
While one might expect these growth trends to increase the level of
competition for retail real estate in 2015, our panel of experts expressed
mixed opinions.
Clay Smith, executive vice president of retail brokerage at Jones Lang
LaSalle, notes: “The competition for good retail space will continue to
be very fierce. The amount of retail development has continued to be
constrained and has not kept pace with demand.”
Buxton Senior Vice President Paul Schlesinger agrees that competition
will be more difficult in the coming year, saying, “Good retail space has
always been, is and will continue to be at a premium. Simon Properties,
the dominant mall and outlet mall landlord, has made significant capital
investments in its ‘A’ properties, and both demand and rents are up
for space in these properties. A lot of the 5 year leases (and older 10
year leases) that were done at cheap rates during the recession are up
for renewal and many of these existing retailers will be forced out of
these spaces by the higher rents. Waiting to fill these prime spaces are
retailers such as Tory Burch, Michael Kors, and Kate Spade.”
However, other industry experts point to the large amount of real estate
opening up as formerly dominant big box anchors close their doors,
saying that these vacancies will ease competition for space.
Elaine Misonzhnik, senior associate editor of National
Real Estate Investor, told Buxton, “It’s likely that next year
expanding retailers will have an easier time finding space
as some of the declining brands exit the market, both
through potential liquidations and through subleasing
their spaces…that should create more opportunities for
new chains to find both anchor and inline spaces.”
In some retail sectors, such as the grocery industry,
“equilibrium” is expected to maintain the level of
competition for real estate in the coming year. Marc Drasin,
vice president of real estate at Grocery Outlet, expects
competition to remain steady. “You have people getting
out of the market, like Fresh & Easy, and people getting
into the market, like Aldi’s,” says Drasin.
Other industry insiders point to the readily available retail
real estate in second and third tier markets, leading to the
conclusion that while competition for Class A real estate in
top tier markets will continue to be extremely high, retailers
that are willing to look to new markets or redevelop former
big box space will find competition more manageable.

4. As we look ahead to 2015, many of the trends we noted in the
2014 edition of Buxton’s Retail Real Estate Outlook are expected
to continue gaining strength.
Small footprint stores, for example, continue to be a hot trend. On
one end of the spectrum, big-box giant Walmart has aggressively
expanded their small-store format stores,5
while at the other end
of the spectrum restaurants such as BRAVO | BRIO Restaurant
Group are slightly shrinking their footprints to drive efficiency.6
Gregory J. Moran, president of Aubuchon Realty Company Inc.
and senior vice president of real estate for W.E. Aubuchon Co.,
Inc., projects that big box and category killer size footprints will
continue to shrink.
Buxton’s Peter Healey, vice president of account management,
agrees stating, “Many traditional retailers are shrinking their brick-
and-mortarfootprintsasomnichannelstrategiesareimplemented
and e-commerce divisions make up for the reduction of square
footage in the stores.”
Another key trend we discussed last year that will continue in
2015 is the movement of retail to urban centers, and not just
toward traditional urban retail destinations like Manhattan and
Chicago. Downtown redevelopment is picking up steam in many
second and third tier cities, leading to what PwC refers to as the
emergence of the “18 hour city,” cities that are alive well into the
night and on weekends, if not 24/7.
The 18-hour city contradicts the notion that “only the great
coastal cities can be alive around the clock and on weekends,”
with one Southeast broker pointing to downtown Greenville and
Charleston as “under the radar” examples of cities that are “alive
in the evenings.”3
Schlesinger points to the gradual revitalization
of downtown Cleveland, a process 10 years in the making,
saying that “young people are moving back, and the shops and
restaurants are quickly following.”
Retail
Real Estate
Trends
“Many traditional retailers are shrinking their brick-
and-mortar footprints as omnichannel strategies
are implemented and e-commerce divisions make
up for the reduction of square footage in the stores.”
Peter Healey, Buxton

5. Looking forward into 2015, we see other trends gaining momentum as well with one
of the most intriguing trends being the movement of online stores to offline channels.
Whether these offline channels are pop-up shops à la Zappos, partnerships with
traditional retailers such as the arrangement Blue Nile formed with Nordstrom, or
full-fledged brick-and-mortar stores such as the ones being opened by Birchbox and
Bonobos, online retailers are recognizing the benefits of a physical presence.
Another major trend is the marriage of bricks and clicks as brick and mortar retailers
focus on developing their omni-channel strategies. For example, Restoration Hardware
is seeking real estate for grand “showrooms” with the goal of driving shoppers to order
online, while other retailers are emphasizing “click and pick up” services, which make
convenient locations a priority.
The redevelopment of regional malls to bring in more food, service and entertainment
concepts is another trend that we expect to see gain traction in 2015. According to
Schlesinger: “Today’s customer is looking for an experience that feels more real,
more fun, with more variety in the shopping experience. Architecture, design,
natural sunlight, integration with the outdoors, alternative uses like better and
more innovative restaurants, etc. will continue to gain traction with the customer.”
Additionally, neighborhood and community centers, particularly those anchored by
grocery tenets, will attract a lot of investment in 2015. “I feel that traditional and
neighborhood retail centers are the local life blood, with regional centers having run
their course,” notes Moran. Others in the industry agree, with a 47.3% plurality of
respondents to PwC’s Emerging Trends survey rating neighborhood and community
centers a “buy.”3
Finally, look for more retail growth in second and third tier cities in 2015. Why? Because
as expressed previously, retailers are running out of Class A real estate opportunities in
major markets and high prices are driving them to look elsewhere for growth.
Which markets
have seen the
most urban center
growth over the
last three years?
SEATTLE
6.9%
CHARLOTTE
7.3%
DENVER
7.6%
AUSTIN
8.6%
Source: PwC

6. Sites evaluated
by SCOUT clients
Evaluated
Strong and steady
Atlanta
Rising star
Denver
Strong and steady
Chicago
Strong and steady
Dallas/Fort Worth
Rising star
San Antonio
Strong and steady
Houston
Strong and steady
Los Angeles Strong and steady
San Diego
Strong and steady
San Francisco
Rising star
Portland
Rising star
Austin
Retail development follows job growth and migration patterns, making historical trends an important factor in development decisions.
Where there are jobs, there will be population growth followed by retail growth, according to the traditional view of market dynamics.2
But some suggest that moving forward, the U.S. may actually experience labor shortages, creating a situation in which jobs chase
people.3
This could mean, for instance, that second tier cities popular with Millennials, such as Denver and Austin, see an even greater
influx of jobs and development as the young professionals in these cities draw development to them rather than going toward areas that
are already highly developed.
Hot Markets

7. As the retail real estate market rebounds, the stakes are
higher than ever before. How will you position your brand
for long-term success? To learn more about how Buxton’s
customer analytics and retail expertise can help you grow
with confidence, contact us.
How will you
strategize
for success
in 2015?
In order to predict hot markets for retail growth in 2015, Buxton
examined site scores run between October 2013 and October
2014 by a sample of approximately 150 current Buxton clients,
primarily in the retail and restaurant industries. By examining
patterns in the site scores, it’s possible to identify markets that
are drawing interest from retailers.
Not surprisingly, the largest markets continue to dominate the
list. Traditional retail hubs along the northeast corridor as well
as Atlanta, Chicago, Dallas/Fort Worth, Houston, Los Angeles,
San Diego and San Francisco all generated a lot of interest from
retailers.
What’s more interesting to note is the subtle changes in the site
score patterns year-over-year. Portland, for instance, showed a
slight increase in site scores this year, as did the central Texas
region around Austin and San Antonio. Minneapolis/St. Paul, on
the other hand, showed a slight decline in the concentration of
site scores in their metro area.
In short, the site score data validates many of the trends predicted
by traditional metrics such as population and job growth.
1. ReisReports: Q2 2014 Retail Market Trends. October 1, 2014.
http://www.reisreports.com/resources/cre-news-and-updates/retail/q2-2014-retail-market-trends
2. IBISWorld Inc.: IBISWorld Industry Report NN007 Commercial Real Estate in the U.S. October
2014.
3. PwC and the Urban Land Institute: Emerging Trends in Real Estate®
2015. 2014.
http://uli.org/wp-content/uploads/ULI-Documents/Emerging-Trends-in-Real-Estate-2015.pdf
4. CoStar: CCRSI: Commercial Real Estate Price Surge Continues In Third Quarter. November, 2014.
http://www.costar.com/costar-news/details/2014/11/12/commercial-real-estate-price-surge-
continues-in-third-quarter
5. The Huffington Post: Walmart’s Future Isn’t The Big Box Store. November 11, 2014.
http://www.huffingtonpost.com/2014/11/14/walmart-earnings_n_6152484.html
6. Buxton: Buxton’s 2014 Retail Real Estate Outlook. January 16, 2014.
http://buxtonco.com/buxtons-2014-retail-real-estate-outlook
REFERENCES
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