Today’s Retailers are Better Negotiators Thanks to Technology

Retailers are no strangers to technology and they are not afraid to use it. Find out how retail occupier trends are forcing CRE leaders to get on board with tech innovation.

Photo Source: "Architectural Digest", Restoration Hardware Flagship Store, Gold Coast, Chicago, IL.

Commercial leasing strategies vary based on the market dynamics of an asset class. For instance, today, the office sector has one of the highest vacancy rates in the CRE industry. This has thrown supply and demand off balance in the market, providing tenants with an abundance of options, and prompting CRE leaders to be smarter and faster negotiators.

On the other side of the coin sit CRE subgroups like retail, medical office, and life science, where leasing is fire hot. For the retail landscape, in particular, the post-COVID, in-store shopping renaissance has driven large retailers to approach CRE operators and owners, once again, in search of premium retail space to lease.

Read on to find out how technology may be giving commercial tenants the upper hand, arming them with negotiation power and preparedness over CRE owners. 

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The Tech Hesitancy Problem in CRE
Tech-savvy Retailers & Premium Consumer Demands
What Retail Industry Trends Mean for CRE
How CRE Leaders Can Support the New Generation of Retail

The Tech Hesitancy Problem in CRE

Since OpenAI released ChatGPT in 2023, experts and industry leaders have raised concerns about adopting AI before fully understanding its ramifications. This resulted in negative press as well as fears about facial recognition, driverless vehicles, and false information online.

Today, hesitancy persists among some market elites. Experts believe AI advancements could impact 300 million jobs worldwide in the coming years. Executives also worry about the privacy implications of AI, especially whether large data models expose organizations unnecessarily. This concern, combined with the fact that 67% of CEOs trust intuition over data-driven insights, has slowed AI adoption in one industry in particular: CRE.

Read “The Economics of Tech Hesitancy in CRE” >>

While some portfolio stakeholders appreciate tech for streamlining tasks like accounting, CTOs hesitate to adopt AI due to the confidential nature of their contractual data. However, it has become clear that commercial tenants, particularly retailers, are more willing to use technology to understand their business needs than their property owner counterparts. This proactive approach gives many retailers an upper hand in the market, but it’s necessary because retailers have greater business needs today than they did just 5 years ago.

Moreover, CRE operators who manage their portfolio data ineffectively may struggle to grow their portfolios and attract high-quality retail clients who effectively manage their businesses.

Tech-savvy Retailers & The Growing Demand For Premium In-store Shopping Experiences

So what is driving business innovation for retailers today? In 2017 it was surviving the “retail apocalypse”. In 2020 it was eCommerce, and today it’s the hybrid shopping experience. Consumers demand more from retailers than ever before. This includes higher quality products (which are more expensive) and the seamless integration of the digital and physical shopping experience.

Inventory Management Systems.

When we think of inventory management, we think about rows of colorful shelves in a grocery store or folded clothes in a store. Rarely do we think about the amount of physical space or processing power it takes to manage merchandise for brick-and-mortar and online stores.

As consumer spending continues to increase, it’s more important than ever for retailers to leverage technology to manage inventory and keep pace with their buyers. Thus, many retailers are turning to integrated inventory management systems to gain better oversight into the inventory needs of their businesses as well as the space requirements they need for housing backup inventory, fulfilling orders, and providing their customers with a seamless shopping experience.

CRM.

Consumers are getting smarter about the way they spend their money. Many experts point to inflation driving sensitive consumption, but environmental concerns are yet another factor causing consumers to conduct greater research and connect with a brand on a personal level before making a first-time purchase.

This has led many retailers to invest in customer relationship management (CRM) systems that help support customer interaction throughout the buying process, including personalized marketing campaigns, loyalty programs, and feedback surveys.

Easy Returns.

Online shoppers demand a seamless return process from retailers. If a brand requires a customer to print and pay for a shipping label, that can make or break brand loyalty or even just a simple one-time purchase. Why? Well, for one, only 45% of American households have a printer thanks to the ubiquity of smartphones and tablets. Additionally, Millennials and Gen Zers have very different shopping habits than older generations; they prefer shopping online, and a key part of the online shopping experience is the ability to complete a return.

Show Rooming, AR, & AI-powered Personalization.

Even with so much innovation occurring in the digital side of commerce, there are many in-store retail trends shaping the industry as a whole. Both Millennials and GenZers like to visit stores to see and feel products in person or complete some portion of an online purchase in person (33% of GenZers expect to be able to pick up and return items in-store). This has encouraged many retailers not only to hang on to their brick-and-mortar locations but to upgrade them as well.

This has caused some brands to lean into showroom experiences, in-store product personalization, and even augmented reality to encourage shoppers through their physical doors. There are many examples of the success of this approach from Restoration Hardware’s flagship store to Nike’s House of Innovation in New York City. 

What Retail Innovation Trends Mean for CRE

Retail industry trends are a great thing for the commercial real estate industry. Complex inventory needs mean larger retail footprints and warehouses for storage. High-end in-store experiences mean more traffic to shopping centers and CBDs. It seems everyone wins in this scenario.

However, newness often calls for caveats and adjustments. For retailers, those adjustments include anticipating their customers’ needs with technology, investing in higher-quality materials, and delivering a seamless end-to-end experience to build brand loyalty.

For CRE leaders that means understanding the retailer’s space requirements for effectively running their businesses, supporting upgrades and expansions, and accommodating personnel with amenities like parking, security, well-maintained HVAC systems, and common areas.

Anticipating shopper and retail trends is only part of the equation for leasing to the new era of retailers. Retailers “know their stuff” today more than ever before and they are coming to lease and renewal negotiations armed with data and demands.

How CRE Leaders Can Stay Ahead and Serve This Next Generation of Retailers

Business owners and retailers who fully understand the needs of their business make great tenants. Why? Because they know what they need to generate income. CRE leaders need to follow suit and effectively warehouse and recall the thousands of documents contained within their retail portfolios so they can effectively sign and manage new retail contracts.

This is where having an AI adoption strategy comes in handy for finding the technology solution that best fits your portfolio data management needs. Or, if the AI conversation is a little too confusing, turn to Prophia for simplicity when it comes to contract data management. Our AI is equipped with a proprietary algorithm capable of categorizing and bringing your static portfolio data to life through simple lease abstraction.

Whether you manage just one or a fleet of multi-tenant buildings, it is imperative that, like your retail clients, you understand the intricacies of retail space requirements—including legal parameters like exclusive use, which can be very hard to track if you are managing your contractual data or you're relying on an external legal team. Prophia houses your portfolio’s lease data in an accessible, centralized place so you can easily uncover patterns in your lease language, enabling faster negotiations and lease drafting, or simply monitor encumbrances and critical dates of your in-place tenants. The choice is yours based on your portfolio’s growth strategy.

To see the kind of impact Prophia can have on retail portfolios, we have supported operations for many CRE organizations with retail clients and we continue to refine our algorithm to support the industry’s leading asset classes.