With vacancy rates somewhat stable across the state, retail, residential, and other commercial functions are blending together, driven by consumer demand for convenience and offerings beyond traditional shopping. While malls and big box stores face pressure from e-commerce growth, there is demand for experience-driven spaces. Spencer B. Kallick, partner at Allen Matkins, speaks with Joey Miller, principal, The Runyon Group and Allen Matkins' New York Real Estate Partner Sandy Jacobson on the retail sector unveiled in the Winter 2025 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.
Spencer B. Kallick: If you'd ask a couple of years ago, people would say retail's dead, no one wants retail. But Joey, you guys doubled down and said we're going to reinvest and take on new projects. What are the trends you're seeing right now?
Joey Miller: An important point about retail that is universal is that no amount of technology will take away the desire to go out and do something. People want to be in an aesthetically pleasing, safe shopping environment. We try to make that happen and also provide an element of discovery. When you come to one of our properties, we're hoping that you see a store or some products that you haven't seen before.
SBK: As growing retailers seek new real estate, Sandy, what are the top considerations for developers and property owners?
Sandy Jacobson: As retailers and developers alike look to expand their footholds in the marketplace, some key factors that they look at are the demographics of the surrounding area and which clientele will be pulled into the center to support the retail operation and create synergies for the retailers already in the project.
SBK: Joey, tell us about your shift into not just owning retail real estate, but also owning the stores themselves.
JM: We have two responsibilities: Building aesthetically pleasing, safe environments in great locations that people want to hang out in, but then also bringing these cool brands to our projects that people want to come back and see all the time. We try to create something like Netflix in retail. We realized we needed to have our own “content” and now, not only do we have 25-30 stores and restaurants in a center that we own, we also generally own one women's and one men's multibrand clothing store.
SBK: Sandy, what trends are you seeing?
SJ: Developers are looking to build out their shopping centers with a variety of service-oriented tenants that help support the community around them, which helps drive foot traffic into the center. They're looking for childcare centers and learning centers, for example, but they're also looking to grow the restaurant and food-service footprints because these uses also help to create heavier foot traffic for centers.
SBK: What does the new physical space look like without big box and strip centers?
SJ: Since the pandemic in 2020, retailers have had to look at their space differently because they really need the home delivery market to help support their business operations in the marketplace. So they are looking for more back-of-the-house space and more warehouse space to support their needs.
JM: After big outdoor malls and lifestyle centers, we've tried to be a part of a new movement toward the luxury strip center. There are smaller, more curated stores that instead of averaging 5,000 sq. feet, average 1500 sq. feet. Consumers want a more tailored experience, and that won't change.
SBK: Sandy, how have retail leases evolved since the pandemic, especially as retailer demand has been strong?
SJ: The pandemic really made people think that the retail sector was going to be a dying business, but retailers have been able to pivot and address the fact that people will shop in person and order online for different things. The market has shifted from being very tenant-friendly to being more of a neutral or landlord-friendly market.
SBK: Joey, do you agree?
JM: Yeah, I think that right now for the right project it is a landlord's market. Supply and demand are meeting each other and you're not going to have explosive growth, but you've really seen the ability to price at two to three-percent increases every single year. We've seen really good leasing velocity whenever something comes up and in the right center, the ability to push a little bit. This is also because there are new entrants coming in all the time. While people now need less office space, space is still mission critical for retailers. They need the physical space for their business, so they have to open more stores.
SBK: Joey, can you get your crystal ball and tell is what we will be talking about in the retail space in 2026?
SJ: The retail space in 2026 will be a continuation of the trends that are starting right now, which is that institutions and family offices want to be in this business for the first time in 20 years. You'll see a speeding up of that. I think that you'll see a continuation of the trend of grocery-anchored centers in affluent neighborhoods or very dense neighborhoods will continue to play really well. I'm betting with my firm on the fact that the boutique shopping center will be growing over the next couple of years and will be a place that retailers want to go.
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