CHICAGO, Oct. 21, 2021 - Lifestyle centers may be one of the most undervalued retail asset classes currently. According to JLL, increased customer foot traffic, declining vacancies coupled with growing rental rates and broad-based expansion plans from retailers are bolstering confidence and signaling that lifestyle centers will come back strongly.
While smaller grocery-anchored retail has dominated investment demand recently, the increase in vaccinations and re-openings is motivating shoppers - and investors - to return to other retail segments. Lifestyle centers were conceived as a modern-day interpretation of the mall and are known for their outdoor settings and incorporation of other uses like office, multi-housing and hospitality space. They also usually include upscale, national-chains, and specialty retail with dining and entertainment options.
"Leasing demand from new tenants in the market, such as digitally native brands, as well as traditional mall retailers looking for an off-mall growth strategy, are accelerating the desirability of this asset class to consumers," said Senior Managing Director Chris Angelone, JLL's retail co-leader in capital markets. "Investors are taking notice and will seek out performance and growth potential. Two to four years from now, high-performing lifestyle centers will reclaim their spot as a trophy, core asset class among investors."
Placer.ai data shows customers are returning to lifestyle centers. The top 20 lifestyle centers in the highest population U.S. markets report nearly 8.1 million visits occurred in August 2021, a significant increase in foot traffic compared to 1.3 million visits reported in April 2020 and only a 7.2% decline overall from August 2019.
Additionally, planned expansions by well-known retailers typically found in lifestyle centers like Sephora, Fabletics, Athleta and American Eagle and restaurants such as Torchy's, Cru's Wine Bar and Yardhouse will aid rent growth. Providing individuality among tenants allows them to create their own identities, and this helps differentiate lifestyle from strip centers.
"The lifestyle center format is attractive to retailers looking to expand, especially the retailers that survived the pandemic and are still very active in their marketplace," said Naveen Jaggi, President of Retail Advisory Services, JLL, Americas. "By introducing a mix of national retailers and restaurants and adding amenities designed to enhance the customer experience is exactly what shoppers are looking for as they resume their pre-pandemic activities."
Compared to malls, lifestyle centers have the lowest average vacancy, 6.5% versus 6.8% for super regional malls and 10% for regional malls. According to JLL Research, during the second quarter of 2021, lifestyle centers are drawing 46% higher rents than regional malls and 11.5% higher rents than super regional malls.
"Investors will pursue lifestyle centers because of the ability to grow property revenues as a result of the improving fundamentals of the sector," said Senior Managing Director Danny Finkle, JLL's retail co-leader in capital markets. "Investors will not sacrifice quality for yield when it comes to lifestyle retail, yet quality lifestyle centers will also offer strong yields and outstanding long-term growth opportunities."
Lifestyle centers also cultivate a communal sense of place by becoming part of their customers' lives, leading to repeat visits that add up and affect the value and performance of the asset.
"If you look at the true quality of lifestyle centers, they performed well prior to the pandemic and are performing well again, and that is appealing to investors," said Senior Managing Director Barry Brown, JLL's retail co-leader in capital markets. "The whispering happening now among investors might turn into cheering over the next few years, as there is the potential for huge valuation increases within the segment."
JLL's Capital Markets group is a full-service global provider of capital solutions for real estate investors and occupiers. The firm's in-depth local market and global investor knowledge delivers the best-in-class solutions for clients - whether investment sales and advisory, debt advisory, equity advisory or a recapitalization. The firm has more than 3,000 Capital Markets specialists worldwide with offices in nearly 50 countries.
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