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s the calendar flips to a new year, speculation swirls about the fate of physical retail. But beneath the surface, a different story unfolds. The marketplaces industry and brick-and-mortar retail are thriving, with demand for space outpacing supply.
The numbers tell the tale: the retail vacancy rate hit 4.1% in 2024, one of the lowest rates in decades. Meanwhile, the vast majority of retail sales occur within physical stores. This is no anomaly; it's a testament to the enduring appeal of in-store experiences.
New development has slowed to a crawl, constrained by high interest rates and escalating construction costs. Even if the economic climate improves, it'll take years for new space to become available. In this environment, retailers can't afford to abandon physical stores.
Research from ICSC's Halo Effect series reveals that opening a store in a trade area boosts online sales – even for e-commerce-only players. Conversely, closing stores leads to declines in online sales. This "Halo Effect" underscores the importance of brick-and-mortar in an omnichannel strategy.
So, what can retailers and property owners do to revitalize communities, connect with consumers, and refresh their physical footprint? By embracing creative strategies that maximize available space, they can create engaging experiences that drive sales. Smaller-format stores, store-within-store concepts, pop-ups, and mixed-use developments are just a few examples of innovative approaches.
Some retailers have already taken the lead: Macy's and Ikea have successfully experimented with smaller formats; CVS plans to open at least a dozen new locations in the coming years. Mall redevelopment has also gained traction, as developers repurpose shopping centers into vibrant mixed-use communities.
AvalonBay Communities' recent opening of Avalon Alderwood Place inside a suburban Seattle mall is a prime example of this trend. By investing in reimagined physical space, retailers and property owners can build lasting connections with consumers and communities – and reap the rewards of the "Halo Effect."
