^{Source: CNBC}

The Changing Face of Shopping Centers: From Retail Hubs to Service Destinations

Shopping centers across the U.S. are undergoing a transformation, with a notable shift from traditional retail storefronts to service-oriented businesses. This strategic change is driven by the evolving demands of consumers and the need for e-commerce-resistant models. In a recent interview with CNBC’s Jim Cramer, Kimco Realty CEO Conor Flynn outlined the new business environment shaping the future of shopping centers.

The Rise of Service-Oriented Shopping Centers

According to Flynn, the key to staying relevant in today’s retail landscape is to offer services that require in-person visits. “Services are all about being in person and e-commerce-resistant,” Flynn explained. This shift towards services is reducing vacancy rates to historic lows, as consumers increasingly seek out experiences and essential services that online shopping cannot replicate.

Many of these service businesses are health and wellness-focused, including urgent care facilities, veterinary clinics, and other essential services. These businesses not only fill vacant retail spaces but also drive consistent foot traffic, making them a reliable choice for property managers.

Grocery-Anchored Centers: A Recipe for Success

Flynn also highlighted the importance of grocery-anchored shopping centers, which have become a resilient model for retail real estate. Most of Kimco’s centers are anchored by well-known grocery brands such as Whole Foods, Trader Joe’s, Sprouts, Kings, and TJX stores. These stores provide a steady stream of visitors, creating a foundation for other businesses within the same complex.

This model has proven so successful that around 80% of Kimco’s new leasing deals now involve service-oriented tenants rather than traditional retail stores. This diversification is crucial as it allows the shopping centers to remain viable in a rapidly changing market.

Service Businesses Filling the Gaps

One notable success story shared by Flynn involved backfilling vacancies left by Party City’s bankruptcy. Kimco has already filled half of the empty spaces, with new tenants paying 40% more in rent than Party City did. This demonstrates the financial potential of transitioning to more resilient, service-based business models.

Flynn pointed out that the pandemic played a role in filtering out businesses with weak financial structures. Those that survived are better positioned to thrive in the current market, as they tend to have robust models and stronger balance sheets.

Integrating Retail with Residential: A Vision for the Future

Looking ahead, Flynn sees mixed-use developments as a significant opportunity. With the rise of robotaxis and autonomous vehicles, parking needs are decreasing, allowing for the transformation of parking lots into residential spaces. Flynn envisions shopping centers evolving into community hubs where retail and residential spaces coexist.

“Retail enhances the apartments, and apartments enhance the retail. It’s a harmonious situation where they can drive traffic to each other,” Flynn explained. This synergy could prove vital as shopping centers continue to evolve in response to societal changes.

A New Era for Shopping Centers

As consumer behaviors shift, shopping centers must adapt or risk obsolescence. Kimco Realty’s focus on service-oriented tenants and mixed-use spaces is a forward-thinking strategy to keep these centers relevant and thriving. While retail is still part of the equation, the future lies in offering essential services and creating integrated community spaces.

By prioritizing services and embracing new development opportunities, shopping centers can continue to be vital components of local economies, even as the retail landscape undergoes significant transformation.

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