The Case for Mixed-Use Retail Centers and Their Continued Investment Potential


Early pandemic fears that brick-and-mortar retail would not live to see the next decade look to be largely unfounded. Shopping centers remain a sound investment for private firms and large institutional investors alike, as evidenced by new numbers suggesting that retail acquisition surged to nearly $82 billion last year, a figure up 24% from the pre-pandemic levels of 2019. This revitalization has continued into this year, with first-quarter transaction volume hitting $25 billion, reflecting an 82% increase from the same period in 2021. In the second quarter of this year, more than 900 shopping centers sold nationwide—a total of $16.6 billion alone for in-person retail. Retail vacancies are the lowest they’ve been in at least 15 years, and current rent averages are up 16% than the rental rates of five years ago.

Given these statistics, the case for shopping center investment is still a persuasive one—while the “at-home” economy, led by e-commerce sales, controls about one-fifth of core retail sales, brick-and-mortar retail continues to dominate consumer habits. Just because you can buy a car, a diamond ring or a full grocery order online, that does not mean that traditional consumer preferences have become extinct. While the traditional in-person shopping experience may be evolving, it is not dead as some people believed it to be. Capitalizing on this continued traditional consumer experience requires tailoring the shopping experience by making it just that, an experience, through tenant-diverse, mixed-use “shopping destinations” that are better equipped to withstand potential economic turbulence.

Though Traditional Consumer Habits Still Dominate, Stores Need to Evolve.
E-commerce, for all its benefits and perceived convenience, is fundamentally different from the in-store, in-person shopping experience. Even when facing a pandemic, customers still, on the whole, crave an in-person experience, shopping or otherwise. While many retailers provide free or next-day shipping, an in-store experience provides the instant gratification that many shoppers still want. Physical stores provide immediate access to products that e-commerce simply cannot. Shopping is also a social activity that brings people together, one that cannot be replicated online. So, the traditional American shopping experience is not dead, despite a pandemic that kept everyone at home and a decline in consumer spending overall. How, then, do investment firms and retail developers take brick-and-mortar retail to the next level?

Consumer shopping preferences may have changed during the pandemic in response to the unprecedented nature of the event, but regularly scheduled outings to retail centers are back and likely to stick. How those customers want to shop at physical locations, however, has changed. Customers still want to shop in-person, but prefer to do so at large, open-air developments where they can visit their favorite shops, luxury retail, restaurants, grocery stores, and entertainment venues, all in one place. This is especially true for those locations that offer an experience not found on the internet.

Investors, developers and real estate owners can capitalize on this by redeveloping shopping centers to reflect an “all-in-one” model—get customers out to one place and get them to stay there. It is no longer sufficient to only provide the physical location. Consumers want to be enticed by the experience these mixed-use retail centers present, so shopping centers must shift their focus from being simply a place “to shop and then leave” to a welcoming space that offers an “experience” enticing shoppers to stay longer. They can achieve this by leveraging cross-shopping and unique tenant mixes (including retail, residential, and office space), allowing for a shared customer base in one project.

Projects like the Domain in Austin, Texas, have found success in this “all-in-one” model. The Domain combines different retail categories that complement each other and cut across different consumer bases. The area hosts a Whole Foods, luxury retail, trendy bars and restaurants, hotels, multifamily residential, and commercial office space, which together makes coming to the Domain an experience. Instead of making four separate stops to get all their shopping done, the Domain’s customer knows all they need is contained in the same development. Office tenants working in the Domain have a variety of options to eat, shop and entertain right outside their office doors. Even without a specific agenda or shopping list, coming to the Domain itself is an experience, an event, a social destination—drawing in potential customers of all kinds.

All-in-One Retail Is Best Positioned to Withstand Fears of Economic Turbulence.
With rising interest rates, inflation at its highest level in decades and the prospect of a recession, many fear that the retail market is set stall along with the rest of the economy. During periods of economic volatility, discretionary spending is down, which presents serious challenges to traditional, retail-only shopping centers.

Mixed-use, multitenant destinations, on the other hand, are better situated to handle a drop in certain kinds of consumer spending than the shopping malls of the past. Rather than appealing to a singular customer base, these retail “experiences” continue to draw customers in for many purposes: meeting friends at the trendy new restaurant, grabbing dinner ingredients at the grocery store, window shopping at the luxury clothing store, or getting drinks with coworkers at the bar right outside the office. The appeal of all-in-one projects like the Domain lies in its different and well-balanced income streams and its place as a social destination. And even in the face of economic turbulence, people still need to get their groceries, still want to window shop, and still want to hang out with coworkers after the day’s done. Owners and developers can lean on these varied tenant income streams to offset a looming recession’s impact on individual spending power.