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Well-located vintage assets have a vital role to play—if you have the right game plan.

Sometimes, age does matter. At least, some tenants think so.

When it comes to a broker’s job of getting an older property leased, everyone has a slightly different strategy. Commercial Property Executive asked these three brokers what their game plans entail.

Old dog, new tricks

When it comes to shopping centers, Richard Rizika, partner & co-founder of Beta Agency, thinks getting an older asset leased comes down to its adaptability to trends and tenant needs.

One way to make an older building feel more modern is making sure your processes are as cutting edge as possible. “Incorporating technology in management and marketing streamlines operations and appeals to modern businesses,” Rizika said.

Another way to make an older building more appealing is revitalization. Tenants continue to look for ways to demonstrate their brand identity through a building and its signage. And a building that has gone through some cosmetic or structural upgrades can appeal to this type of client.

Finally, an effective brokerage strategy for Rizika means promoting the building and the owner’s efforts to enliven the asset. “Effective marketing and branding strategies, including the use of social media and community events, help to position a center as a vibrant member of the community,” he told CPE.

Quality matters

In the Washington, D.C., office market, Class AA office buildings are extremely attractive to tenants. Their novelty, paired with elevated amenities, gives these spaces an edge that commands higher rents. Yet, Andrew J. Eichberg, managing director, Stream Realty Partners, noted that there are still tenants looking for value.

“We have found that, in order to attract those tenants to older buildings with amenities that aren’t on par with the newer competitive supply, owners must create great spaces for them,” Eichberg said.

Buildings that have been invested in by ownership, whether it be through the implementation of high-end spec suites or modern layouts and designs, have been able to compete with newer inventory. Therefore, brokers can seek value for their clients in finding these value-driven spaces in the marketplace.

“Differentiate your spaces with quality and the tenants will come,” he added.

Providing the right information

Retail tenants today have high demands for power, parking and HVAC. Matt Hammond, partner, Coreland Cos., told CPE that these needs add an additional layer to retail lease negotiations no matter the age of the property.

For brokers looking to get an older retail building leased, it is key to address these concerns upfront, Hammond noted. Prospective needs to know what is available in the property and the additional steps that the landlord is willing to take.

“It’s important to know if a landlord has the ability to deliver required upgrades and at what cost,” Hammond said. “This practical discussion allows both tenant and landlord quickly determine if there’s an opportunity to do a deal.”

A hierarchy of needs

The most effective brokerage strategy when it comes to an older property is matching the right building to the right client. At least, that’s what Michael Cohen, managing principal, Williams Equities, believes. How does he do that? Through something that looks a lot like Maslow’s hierarchy of needs.

Instead of a pyramid that starts with physiological needs and ends in self-actualization, the pyramid Cohen follows is a hierarchy of issues and prerequisites that need to be addressed when a tenant is looking for an office building. The tiers are as follows:

Bottom tier: The financial ability of the owner. “The owner has to be able to show that they have the financial wherewithal to follow through on obligations,” Cohen said. If an owner is in peril of giving back the keys or getting put in default by a lender, no amount of amenity space, tenant improvements or a great location will matter.

Tier 1: The owner’s capacity to meet the pricing realities of today and fund improvements. Cohen says that the next most important thing is an owner’s ability to match lower rental rates in the market, afford to wait for the first rental payments and fund the necessary tenant improvements.

Tier 2: The building’s ranking among its peer group. “It is not uncommon for a tenant that needs 20,000 square feet to have 10, 15 or 20 options to tour,” Cohen noted. And when that is the case, it becomes very apparent which Class B buildings, for example, are at the higher or lower end of the spectrum. Set apart by things like light, air and a nice lobby, the building’s ranking when compared to others in its asset class matters.

Top tier: Amenities. If all of the other tiers have been met, the final consideration is an asset’s amenity space. And the most appealing, Cohen says, is a beautiful outdoor area.

“You have to understand the tenants needs,” Cohen said. And through this pyramid, a broker can match the right company to the right building through ensuring that the right factors are being prioritized.

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JCPenney said this week that it plans to spend more than $1 billion by the end of 2025 to revive the storied but troubled 121-year-old department store chain, The Associated Press reported.

This investment is poised to become the next chapter in JCPenney’s proverbial cat with nine lives survival tale, but experts who spoke with GlobeSt.com say that the $1 billion isn’t enough to make it thrive, and it first must solve its inventory problems.

Much maligned for years, the money will be used to remodel its stores, upgrade its online shopping site and app, and make its supply network more efficient so that online orders are delivered more quickly.

JCPenney’s CEO Marc Rosen, who took over the company in November 2021 and has served as an executive at Levi Strauss and Walmart, is renewing the chain’s focus on its core middle-income shoppers with affordable fashion and housewares.

Rosen told The Associated Press that’s a change from previous management teams’ failed strategy to pursue wealthier shoppers with offers of trendy items and major appliances.

JCPenney’s, however, which emerged from Chapter 11 reorganization in December 2020 with new owners, is playing catch-up to the competition.

Its new owners — mall companies Simon Property Group and Brookfield Property Partners — shuttered nearly a quarter of its 850 stores, leaving approximately 650 stores.

Placer.ai, which tracks people’s movements via cellphone usage, shows that visits for JCPenney stores are down 24% compared with the year-ago period.

Some analysts believe that the $1 billion investment will have a revitalizing effect.

“Across the country, big-box retail has been struggling and JCPenney’s recent announcement is a breath of fresh air,” Michael J. Romer, Co-Managing Partner, Romer Debbas LLC, tells GlobeSt.com. “With the current state of the economy and the cost of everything increasing due to inflation and interest rates, your average consumer needs reasonably priced vendors to exist and to exist physically.”

Shopping malls across the US – especially those outside of luxury markets – are in desperate need of anchor tenants such as JCPenney to survive, Romer said.

“However, large-scale sophisticated retailers understand that, in today’s market, you have to be able to accommodate both the in-person consumer and the online consumer,” Romer said. “JCPenney’s efforts should be applauded and will hopefully encourage others to follow suit.”

JCPenney’s planned upgrades are indicative of a trend that all retailers are experiencing.

“With consumer spending continuing to decline in the face of inflationary pressures, we will see a gradual winnowing of the field of both brick-and-mortar and online retailers,” says Daniel Gielchinsky, Partner and Co-founder of DGIM Law. “Retailers that demonstrate agility and improve the shopping experience will likely survive this recessionary period, while the retailers who rest on the laurels are bound to lose market share.”

Rick Scardino, Principal of Lee & Associates of Illinois and Director of its retail brokerage group, tells GlobeSt.com that there is public sentiment in support of JCPenney’s survival.

“It has become the proverbial cat with nine lives, but that’s not enough to make it thrive,” he said.

“Its focus should be on solving a major, long-standing problem which is lack of inventory. Too often, the stores lack adequate stock due to pulling store inventory for online sales or just due to cost-cutting measures.

“Quite simply, you can’t sell what’s not on the shelves. With many of the freestanding stores closed and the remaining stores being at a mall entrance, there still is a good chance for the consumer to enter or depart the mall through a Penney’s, but the shelves need to be loaded with products that middle America wants.”

Still, Matthew Lux, Partner, Beta Retail, tells GlobeSt.com that JCPenney’s has every opportunity “to be a survivor” in the retail space.

“They already have great real estate, infrastructure to create and distribute and sell the merchandise, so this investment will likely produce immediate returns,” Lux said.

“Despite what you may have read or heard, regional malls and department stores are not dead. Some do cease to exist. Whether it happened from bad management, bad timing, changing trends, a pandemic, or simply bad real estate, there has been a lot of change. And change is good – change allows new ideas, and new initiatives to flourish. And from my view, the survivors of the shake-up are thriving.

“Best-in-class malls are attracting more tenants than ever, and these centers are being leased to an incredibly strong assortment of new retailers, entertainment operators, and other innovative uses.”

Dan Villalpando, partner, Cox, Castle & Nicholson, tells GlobeSt.com that he is pleased that JCPenney elected to re-invest money into its business, rather than simply shutter its stores and go the way of Robinson-May and other now defunct department stores.

“The closure of those large-scale department store tenants has created a glut of unused space in the mall sector, which has negatively affected mall owners,” Villalpando said. “So, by keeping its stores open, JCPenney has already helped to sustain foot traffic in the malls it has been a part of for many years.”

In addition, as part of its spending plan, JCPenney will be reinvesting in its private label brands.

“This comes at a time when many mall customers have been more careful about their spending and may look to private label brands to save money, thereby increasing traffic to JCPenney stores and malls in general,” Villalpando said.

John Sechser, Managing Director of TRI Commercial/CORFAC International, tells GlobeSt.com that JCPenney’s is the last of the dominant value/discount retailers offering a wide range of products from soft goods to hard goods.

“This is a critical time in their history to reinvent their entire product and merchandising program, utilizing multimedia and multichannel marketing,” Sechser said.

“It will be interesting to see if they reconfigure their bricks-and-mortar footprint along with more bricks-to-clicks, consumer-friendly buying along with returns of merchandise. Retailers with products perceived as good value for the dollar spent will continue to excel in the recessionary times ahead.”

Gielchinsky notes that stores whose product mix overlaps with JCPenney’s, like clothing and shoe stores, jewelry outlets, and smaller off-brand stores, will likely suffer decreased sales as more customers are attracted to shopping at JCPenney’s for its competitive pricing, the availability of a variety of products within one store, and a better customer experience.

Derek Heeb, AIA, Senior Studio Director and Associate Principal at RDC, tells GlobeSt.com the reinvestment is a sign there is still a lot of potential in retail.

“It also demonstrates how the built environment is a critical part of the retail experience,” according to Heeb. “We expect this move to have a ripple effect of improvements by mall owners and synergistic retailers.”

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Retailers that in the past plunked down large cookie-cutter stores in malls and power centers across the U.S. have ramped up experiments with smaller formats geared toward local tastes and culture. It’s a strategy that satisfies several needs and goals of retailers at once — first and foremost to forge stronger connections with new and existing customers.

But it also allows retailers to increase their productivity, reduce buildout and operating costs, limit exposure to wrong inventory choices and place more stores in secondary and tertiary markets that have grown as a result of pandemic-driven migration. Additionally, the locations can leverage and expand a retailer’s omnichannel strategy, from processing returns that were bought online and fulfilling e-commerce orders for in-store pickup. Depending on the retailer and size of the store, such a location also could fulfill online purchases for delivery.

“In the 1980s, the word everybody used was synergy, and this century, we were talking about placemaking,” said Richard Rizika, a partner and co-founder of Beta, a brokerage specializing in retail property leasing and tenant representation. “The post-pandemic conversation is about community. How does a brand relate and connect to a community today?”

Kohl’s, Macy’s, Nike, Express and Timberland are among the retailers that have launched smaller, community-oriented concepts. To a large extent, brands simply have been reacting to changes in consumer behavior that accelerated during the COVID-19 lockdowns. A global study by Accenture found that 56% of consumers had reoriented their shopping habits to more neighborhood stores midway through 2020 and that nearly eight in 10 consumers expected to adopt the practice or continue with it after the pandemic.

But if not done right, limited product offerings in small formats run the risk of frustrating consumers who have an endless aisle of e-commerce items at the touch of a screen or mouse, said RDC principal Virginia Maggiore, who heads the architecture firm’s retail store rollout and planning practice. The smaller Macy’s format, Market by Macy’s, has been criticized for offering a reduced amount of the same products rather than providing a more localized or different experience, for example.

“Smaller formats allow retailers to go into communities and get closer to their customers or build a new customer base,” Maggiore suggested, “but that alone is not going to gain a lot of traction if customers were already driving some distance to get your full product offering. You’ve got to have something special that benefits consumers.”

Data Driven

To provide such a differentiated experience, retailers tailor their offerings to particular communities. But successfully executing a localization strategy goes well beyond just stocking clothing and gear with the logos of the town’s sports teams. It hinges on a retailer’s ability to collect, analyze and act on local consumer data collected from conventional stores, as well as from online sales, mobile devices and social media marketing efforts like Facebook and Instagram advertisements.

“Brands today have more information about their customers than they’ve probably ever had,” said Cushman & Wakefield executive managing director and head of retail services in the Americas Barrie Scardina. “They know not only what you buy from them, but they can also see the other stores you’re going to in a shopping center. And there are much better tools that analyze how a store can turn on and build product categories and then turn them off.”

By putting that data to work, small-format department stores will emphasize outdoor clothing and accessories in certain communities and high heels and party dresses in others, said Rebekah Kondrat, managing partner of physical retail agency Rekon Retail. Similarly, one local demographic may prefer natural-colored cosmetics or even gender-neutral apparel compared with people in a different community, she added.

“It makes a lot of sense to go from very large-format stores to appearing smaller and speaking to local trends and culture,” Kondrat explained. “Generation Z and the younger Millennials are not so keen on the big boxes and impersonal experiences, so the writing is on the proverbial wall, if you will, as to what the up-and-coming generations are craving.”

Varied Approaches

Although several brands have introduced small-format concepts into their mixes, few promote them as dramatic departures from their overall retailing mission. Kohl’s, for example, began to roll out smaller, 35,000-square-foot stores in 2017 as part of an optimization initiative. Its conventional stores are roughly 60% larger in midsize markets and 170% bigger in large markets. But in November, Kohl’s opened a small-format concept store in Tacoma, Washington, to “test and learn about new ideas and store experiences that may be used in new or existing Kohl’s stores in the future,” according to the company. In Tacoma, it is stocking more outdoor merchandise befitting an active lifestyle and is incorporating modern fixtures, displays, shelving and product vignettes to provide its customers with “discovery and inspiration,” the company said.

Other recent introductions include Timberland’s 3,254-square-foot flagship in Manhattan’s SoHo, which emphasizes womenswear for the outdoors and for work and personalizes clothes and shoes for members of its new loyalty program. Meanwhile, Express opened six Express Edit stores in the second half of 2022, an expansion of the concept that rolled out a few years ago. Those stores are generally 4,500 square feet or smaller in off-mall locations and cater to local style and trends.

Similarly, in June 2020, Nike executives revealed the company planned to open as many as 200 small-format and digitally enabled stores to drive market and long-term profitability. By that time, the company already had launched its first Nike Live concept store, a roughly 4,500-square-foot location in West Los Angeles that sought to link the digital and physical shopping experiences. Its Nike Unite concept, which provides communities with “locally curated” products, came later. The Unite stores, which reimagine Nike’s factory outlets, are around 16,000 square feet.

Recent Nike Live openings include Nike by University Park Village in Fort Worth, Texas, and Nike by Lexington in Kentucky, while Nike Unite stores have opened in Manhattan’s Harlem and in Watertown, Massachusetts, among other locations. All told, Nike’s visits grew nearly 22% year over year in January and 6% year over year in February, while traffic in the broader sporting goods category declined in each of those months, according to Placer.ai. “In an age when brick-and-mortar stores must compete with the ease of online shopping,” the location analytics firm said, “a unique experience can keep customers coming through the door.” What’s more, rolling out different concepts indicates Nike isn’t necessarily looking for a one-size-fits-all solution, Scardina said.

The localization trend is not confined to apparel companies. In 2011, Starbucks opened its first Starbucks Community store, and to date, it operates more than 150 around the world, 30 of which are in the U.S. The concept “lifts up” in locally relevant ways, including hiring staff from the surrounding neighborhoods, partnering with local nonprofits, playing local music and providing community spaces or tables for meetings, a Starbucks spokesperson said.

In Springfield, Missouri, for example, a Starbucks Community store partners with the Boys & Girls Club, Big Brothers Big Sisters and Springfield Dream Center. The coffee shop’s community store east of the Anacostia River in Washington, D.C., features a mural produced by a local artist. “We do a lot to ensure that we are showing up in ways that support our commitments and what we say are our mission and values,” the spokesperson said. “Every community store is unique to the neighborhood, but overall, the response has been great.”

Here to Stay

While retailers have indicated they intend to expand their small-format portfolios, observers suggested that the concepts are still in a test period as brands try to figure out what works and what doesn’t. The overall performance of the concepts remains a question mark, as the results have been mixed among various retailers, observers said.

Still, even if small-format stores are not profitable right away, opening them poses far less risk than committing the capital and time to develop more traditional large locations, Rizika said. Occupancy costs alone associated with a 200,000-square-foot store can prevent department stores from being as competitive as they could be in a location about a quarter of that size, he added. Plus, with developers creating new spaces in redeveloped strip and grocery centers or in new mixed-use projects, the opportunities to open large traditional stores are limited.

“I think the trend is here to stay,” Rizika declared. “Smaller stores are more efficient and are also less expensive to set up, and as retailers get more intelligent about what their customers want, they’re actually getting better market penetration by providing merchandise that’s most relevant.”

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