12 February 2019
Recently, my partner, Guy Maisnik, and I spoke about hotel retail mixed-use development with Kelsi Maree Borland of GlobeSt.com. Her article, Why Retail Owners Are Partnering With Hotels ran with the subtitle, With retail evolving to be more experience-driven, retail owners are finding the benefits of adding boutique hotels to shopping centers.
Retailers adding hotels to the mix is nothing new – but they may be more motivated than ever. The Hotel Law Blog has been covering hotel mixed-use projects — where the hotel provides the catalyst for social activity at shopping centers, office complexes, and residential buildings — since 2009. At that time, retail sales were suffering due to the Great Recession.
“The Great Recession taught retailers that the old mantra was dead”, says Maisnik. “’If you build it, they will come’ may work in the movies but not for increasing retail sales. There were just too many stores and they were boring, outmoded and couldn’t attract shoppers. The drivers for adding hotels to retail projects have not changed in the last 10 years but the force of the drivers and their impact has increased tremendously. Failure to adopt and grow to meet consumers’ desires can be the death knell for retailers.”
Add to this the spectacular growth of online sales, which accounted for 19.1% of total retail sales in 2018, and it is no wonder that brick-and-mortar retailers are hurting. Some, like Sears and JC Penney are scrambling for survival.
“To survive the challenges from online retailing, brick and mortar retail will need to create exciting environments for consumers, where art, music, events, convenience and lifestyle provide a magnet for consumers. Properly done, hotels can be an important part of creating this magic, but hotels provide new levels of complexity in mixed-use projects with their own unique norms, customs, and players.” Jim Butler
What retail properties are good candidates for a hotel, and what should owners interested in including a hotel look for?
To create a great mixed-use project, each component of the project must be strong and must be tested against the fundamentals for that type of real estate use. Just as retail developers go through their checklists to determine what will make a great retail center, if there is to be a hotel, office, entertainment, or residential component, each piece of the puzzle must be tested against its own unique criteria for success. This is particularly true for hotels which need demand, and require a rigorous feasibility analysis. CONTINUE READING →