2019 Metro Market Forecast

Retail Perspective

Grant Mechlin, CCIM, Sansone Group

SIOR RETAIL COMMITTEE MEMBERS

Paul Fusz CBRE

John Shuff Pace Properties

Eddie Cherry The Staenberg

Group

Mark Kornfeld Sansone Group

RETAIL FORECAST TOPICS

•  E-commerce, Amazon and Omni-Channel Retailing

•  The fate of retail as it relates to growth of e-commerce

•  Driving factors in retail bankruptcies

•  Market over saturation

•  Current state of the St. Louis retail market

•  Mixed use developments and Retail-tainment

•  Most notable developments

•  2019 market outlook

THE RISE OF E-COMMERCE, AMAZON, OMNI-CHANNEL

Consumer shopping preferences and habits have evolved

•  New customer focus: Speed, information, convenience, experience, sense of community

•  Most successful retailers using Omni-Channel Retailing to reach customers more effectively

§  Defined: a multichannel sales approach that provides the customer with an integrated customer experience across all channels

•  Must provide a more streamlined experience across all their other channels §  Physical stores, e-commerce, mobile applications, social media,

blogs and online review communities

Website, mobile application, reward program, Facebook page and physical store are all in sync to provide a seamless customer experience

•  75% of their customers visit their website or mobile app before making an in-store purchase

•  Sales associates equipped with mobile devices •  App links to YouTube and Facebook for training, events and

classes •  Membership programs tracks and rewards purchases

Omni-channeling is a powerful tool

E-COMMERCE: FASTEST-GROWING CHANNEL IN RETAILING

Source: Non-adjusted figures from the U.S Commerce Department, Internet Retailer. This data was updated on August 2018.

U.S. e-commerce sales grow 15.4% in 2018 Year-over-year U.S. online retail sales growth by quarter

E-COMMERCE GROWTH ANNUAL RATE COMPARED TO TOTAL RETAIL GROWTH IN THE UNITED STATES FROM 2014 TO 2018

E-commerce outpacing total sales by 300%

Source: U.S. Census Bureau, NKF Research

AMAZON TAKES OVER

•  Speed

•  Information

•  Convenience

•  Experience

•  Community

Source: eMarketer, June 2018

HOW DOES AMAZON STACK UP AGAINST ITS ONLINE COMPETITORS?

FATE OF BRICK-AND-MORTAR RETAIL?

•  Most people believe online sales account for between 60% and 80%

•  This can’t be good for retail commercial real estate

FATE OF BRICK-AND-MORTAR RETAIL?

But how much do online retail sales actually amount to currently?

PERCENTAGE OF E-COMMERCE SALES IN US

•  10% of the $5.1T

•  10% growth rate

•  E-commerce estimated to reach 14% by 2021

Source: Statista 2018

10%

2018*

PERCENTAGE OF E-COMMERCE SALES IN ST. LOUIS

Source: US Bureau of the Census

9.8%

2018*

So we know e-commerce is still a fairly small piece of total sales….so why all the bankruptcies?

WHAT IS DRIVING RECENT BANKRUPTCIES HERE IN ST. LOUIS? Increased competition

•  Low barrier of entry for thousands of online stores to reach customers Merchandising

•  Sears/Kmart trouble attracting shoppers •  TJX Companies: 18 consecutive quarters of comparable-store sales growth!

Privatization •  Toys R Us – TRU files fall of 2017, 735 stores closed •  2005 PE purchase, debt triples to $5B •  Competition issue? 2004 sales were 11.2B; 2017 sales were 11.1B

Market over saturation •  Mattress Firm files in 2018 •  Stores quadrupled from 2012 and 2016 to 3,500; rapid expansion and large company

acquisitions •  Over 230 just in Chicago alone

MARKET SATURATION

•  163M total SF of retail space in St. Louis

•  Over 55 SF per capita in St. Louis

•  23.5 SF per capita in the U.S.

•  Five times that of the U.K. and other European countries

A correction in retail vs. a fundamental shift away from brick-and-mortar stores

Source: ICSC, Planet Retail, Knight Frank Research, As of 2015.

CURRENT STATE OF MARKET

Vacancy: 4.8% (1.1% Mid-County)

Absorption: 30,286 SF

Rental Rates: $13 Avg ($20.20 Mid-County, $16.70 West County)

Entertainment, Restaurant, Grocery and Medical most active

MIXED USE PROJECTS AND RETAIL-TAINMENT

The new cure for retail? •  Projects are experiential in nature by combining retail with

entertainment users •  Mixed-use developments expand on retail-tainment by

providing customers with Live, Work, Play Environments

Examples of new mixed-use and retail-tainment focused projects: •  Ballpark Village Phase 2 •  The District in Chesterfield •  The Foundry

BALLPARK VILLAGE PHASE 2

Phase I: •  100 million, 100,000 SF •  Opened March 2014 •  One of the top

restaurant and entertainment districts in the region bringing in over 6 million visitors a year

BALLPARK VILLAGE PHASE 2

Phase II: •  Currently under

construction •  Over 700,000 SF •  Class-A Office •  29-story apartment tower •  Live! By Loews hotel •  75,000+ SF of new retail

space •  31,000 SF Onelife Fitness

gym

DISTRICT IN CHESTERFIELD

•  $75M project located in one of the top retail trade areas in the region

•  Adjacent to Topgolf •  4 restaurant buildings •  45,000 SF indoor concert venue •  90,000 SF entertainment •  20,000 SF food hall •  150,000 SF of existing retail to

remain •  Construction to begin in 2019

Redevelopment of the former Taubman Outlet Mall

THE FOUNDRY

Redevelopment of former Foundry building built in the 1800s •  26,800 SF Punch Bowl Social •  10-screen, 1,000-seat Alamo

Drafthouse •  100,000 SF office space •  30,000 SF food hall featuring

top restaurateurs in St. Louis

180M project adjacent to Cortex District in Midtown now under construction

SUMMARY OF STATE OF MARKET

•  St. Louis is statistically healthy despite all of the negative pressures on brick-and-mortar stores, and growth of e-commerce and Amazon nationally

•  Great new retail projects coming out of the

ground currently

2019 MARKET OUTLOOK

Market to remain status quo

Vacancy

Remain flat in Core

Rise slightly with Sears/

Kmart closures

Absorption

Net Neutral

Creative entertainment uses, minimal

traditional development

Rental rates

Continue to rise through 2019

Core markets have minimal space or new development

Development

Concentration on mixed use and

retail-tainment vs. traditional power

centers

2019 Metro Market Forecast