Where Should You Open a New Store Now?

Where the people are, of course.

February 18, 2021

ALEXANDRIA, Va.—There is a lot to consider when opening a new store—rent, lease terms, parking, zoning, visibility. But the most important requirement is going where the people are, according to RetailDive.com.

The pandemic has impacted everything from consumer shopping habits to tenant-landlord relationships. COVID-19 and its changes to everyday life may be reversing a decade of migration into cities and ushering in a work-from-home practice that could last even after social distancing is no longer necessary.

"The ramification of not going to work every day, and everything that is happening locally, is almost beyond comprehension," said Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, a customer experience consultancy. "It changes the landscape in retail. Everyone's home in this five-mile radius."

Almost one year since the pandemic began, city centers are eerily quiet as both office workers and tourists stay away, and it's unclear when or to what extent they'll come back. Pre-pandemic, about 90% of office workers were in an office setting five days a week, according to commercial real-estate analytics firm Green Street. That's expected to decrease. 

Adding the caveat that "any forecast beyond that requires educated guesswork," Green Street now predicts that percentage to fall to 60% in the next five to 10 years. A quarter of the other 40% who won't go to the office daily, or 10% of the total office-using workforce, will work from home full time, which "equates to a 10-15% hit to net office demand," Green Street said.

Moody's commercial real-estate arm Reis forecasts the national vacancy rate to rise to 19.4% by the end of this year, peaking at about 19.7% by 2022, Retail Dive reports. That's the climate that leads Green Street to expect higher income consumers to move to "the suburbs and low-cost markets, potentially upending the long-running megatrend toward urbanization." Because of this longevity of remote work, the firm expects many workers to relocate to areas with nice weather, a trend that would hurt municipal budgets and exacerbate the problem.

Others argue that people would miss the convenience and culture that big cities offer. Walter Marin, senior principal of the architecture and design firm Marin Architects, believes that many people who left the cities will return once the pandemic has passed.

"There's a dynamic to living in the city that you can't buy anywhere else," he said. "There's a certain life that you can't substitute, and right now it's temporary."

More broadly, consumers have been conscientious about supporting local shops during the pandemic, a trend that will likely continue, according to Katie Thomas, who leads retail think tank Kearney Consumer Institute and studies consumer trends.

"I think the rise of the local is really something that will stick," she said. "I think there's actually more potential with malls to reinvent themselves exactly in that vein, to have more local [merchandise] to consider. It used to be a good thing that every mall in America kind of felt the same, and now that's not what we're looking for. We're looking for more evolution, things coming and going, local businesses."

In recent years, decisions about store location have centered around where not to open a store. Now, an unusual amount of flexibility from landlords and tumbling rents could lead to more stores opening, sometimes in unexpected places.

"Now in the little neighborhoods, the strip centers, the little areas with shops, a lot of things could open that would work really well," Peterson said.