Leaders in retail real estate cautiously predict an optimistic future.

The past year in retail real estate brought more than its share of surprises - movie theater bankruptcies, fluctuating retail sales, the disappearance of many dot.com upstarts. Will 2001 bring more of the same? What issues will demand attention? Which formats will succeed?

SCW's third annual industry forecast survey attempts to answer these questions and more. The survey was completed by 276 shopping center decision-makers, who shared their views on a wide variety of topics, from e-commerce to redevelopment. These industry leaders cautiously predict an optimistic future.

According to the survey, e-commerce will remain the center of attention in 2001, but brick-and-mortar retailers will no longer see the Internet as a threat. Respondents also offered a laundry list of consumer needs that will begin to shape the industry in the coming year, including aging populations, the movement of "empty nest" suburbanites to central business districts, and a growing emphasis on shopper convenience.

Survey results and write-in responses are included below.

Which of the following topics do you predict will attract the most attention in 2001?

- E-commerce (48%)

- The economy (38%)

- Redevelopment of aging centers (38%)

- Urban and Main Street renewal (30%)

- Mergers & acquisitions among shopping center owners and managers (29%)

- Construction slowdown (28%)

- Retail bankruptcies (26%)

- Mergers & acquisitions among retailers (24%)

- Entertainment as a component of retail (22%)

- Mixed-use properties (21%)

- Lifestyle centers (21%)

- Surplus space disposition (12%)

- Branding of shopping centers (10%)

- Serving minority populations (8%)

- International development and/or expansion (7%)

- Other (1%)

- No answer (1%)

The majority of respondents feel e-commerce will attract the most attention in 2001. But compared to last year's survey, in which the same question was asked, that number is declining.

During the next 24 months, what impact do you believe e-commerce will have on traditional shopping centers?

- Traffic at centers will decline (19%)

- Traffic at centers will increase (7%)

- Center sales will decline (23%)

- Center sales will increase (5%)

- No impact (35%)

- Don't know (26%)

Opinions on the threat of e-commerce vary by firm type. Respondents from finance and investment firms are more likely than shopping center owners and managers to believe sales (30% vs. 17%) and traffic (25% vs. 13%) at centers will decrease due to e-commerce.

Only 35% of respondents believe e-commerce will have no impact on traditional shoping centers.

Which of the following retail categories will be affected most by e-commerce?

- Book stores (70%)

- Computer hardware and software (57%)

- Electronics (41%)

- Office supplies (41%)

- Apparel (16%)

- Drug stores (12%)

- Discounters (8%)

- Department stores (6%)

- Grocery stores (5%)

- Home Improvement (3%)

- Other (3%)

- No answer (4%)

Write-in responses to this question included auction houses; music and video stores; insurance companies; and travel agencies.

What has your company done to react to e-commerce?

- Developed a website to conduct e-commerce (17%)

- Changed marketing efforts (15%)

- Developed a website to promote centers (11%)

- Changed investment evaluation process (9%)

- Changed retail tenant mix (7%)

- Developed a website to drive traffic to centers (7%)

- Developed a website with tenant information to drive traffic to specific tenants in center (6%)

- Developed a website with links to retailers' websites (5%)

- Other (1%)

- Nothing (50%)

- No answer (5%)

Half of respondents indicate their company has done nothing to react to e-commerce. Shopping center owners and managers are most likely to have developed a website to promote centers (17%). Nearly one-fourth of finance and investment companies (23%) have developed a website to conduct e-commerce.

Overall, 46% of respondents believe their strategy has been either "somewhat" or "very" effective; 84% of respondents who have changed the investment evaluation process, marketing efforts or tenant mix believe their strategy has been somewhat or very effective; 68% of respondents who have developed a website believe their strategy has been somewhat or very effective; and 24% of respondents who have done nothing to react to e-commerce believe their strategy has been somewhat or very effective.

In 2001, do you plan to...

- Acquire and/or finance acquisition of new centers (34%)

- Develop and/or finance development of new centers (34%)

- Renovate and/or finance renovation of aging centers (30%)

- Sell center (18%)

- Develop joint venture projects with other developers (15%)

- Maintain portfolio with little or no change (19%)

- No answer (16%)

The majority of respondents have acquisition, development or renovation plans for 2001. Respondents are less likely to have plans to renovate aging centers this year than they were last year. Respondents were also less likely this year than last to predict that renovation of aging centers will gain attention in the coming year.

While 43% of owner and manager respondents plan to develop new centers in 2001, only 29% of finance and investment respondents plan to finance the development of new centers in 2001.

On what types of centers will new construction or renovation take place?

- Grocery-anchored strip centers (51%)

- Neighborhood shopping centers (44%)

- Big boxes and/or power centers (37%)

- Main Street and/or urban centers (34%)

- Free-standing stores (28%)

- Regional malls (24%)

- Lifestyle centers (20%)

- Hybrid centers (15%)

- Other (1%)

- No answer (8%)

Respondents were more likely this year than last to predict new construction or renovation will take place on big boxes and/or power centers.

Among the shopping centers you own or manage, what is your projection for revenue growth from rents in 2001?

- Strong growth (4%)

- Moderate growth (77%)

- No change (13%)

- Moderate decline (3%)

- Do not currently own or manage centers (1%)

- No answer (3%)

Do you believe lenders' underwriting standards will be more or less restrictive in 2001 than they were in 2000?

- Much more restrictive (7%)

- Somewhat more restrictive (54%)

- The same (35%)

- Somewhat less restrictive (3%)

- Much less restrictive (Less than 1%)

- No answer (1%)

Compared with 2000, how do you expect the availability of capital for developers and owners of shopping centers to change in 2001?

- Availability of capital will be the same (61%)

- Capital will be less available (29%)

- Capital will be more available (9%)

- No answer (1%)

The availability of capital is expected to be the same in 2001 as it was in 2000. Correspondingly, 89% of respondents believe lenders' underwriting standards will be the same or somewhat more restrictive in 2001 as compared with 2000.

Those who believe capital will be less available are more likely to believe lenders' underwriting standards will be more restrictive and less accessible (95%).

Which of the following do you expect to be the most active investors in shopping center development, acquisition and renovation in 2001?

- Private investors (52%)

- REITs (45%)

- Pension Funds (30%)

- Insurance companies (24%)

- Banks (17%)

- Other (3%)

- No answer (3%)

Finance and investment company respondents are more likely to believe insurance companies will be among the most active investors in retail development, acquisition and renovation (35% v. 22%).

Nearly half of respondents (46%) expect investor interest in REITs to increase in 2001.

In which of the following types of centers do you believe an oversupply of space exists?

- Big boxes and/or power centers (45%)

- Regional malls (33%)

- Entertainment centers (26%)

- Neighborhood shopping centers (21%)

- Grocery-anchored centers (15%)

- Freestanding stores (14%)

- Main Street and/or urban centers (8%)

- Hybrid centers (7%)

- Others (2%)

- Do not believe there is an oversupply of space (9%)

- No answer (1%)

The markets most frequently cited as having an oversupply of retail space are Atlanta, Dallas and Miami. Only 9% of respondents do not believe an oversupply of retail space exists.

Respondents wrote in several other retail venues they felt were oversupplied, including free-standing drug stores, outlet centers, smaller malls and theaters. Respondents also wrote in several other markets they feel represent an oversupply of space, including Las Vegas; Harrisburg, Pa.; Nashville, Tenn.; Orlando, Fla.; and Richmond, Va.

Compared to 2000, do you expect the rate of mergers and acquisitions among shopping center owners and managers in 2001 to...

- Increase somewhat (48%)

- Stay the same (40%)

- Subside somewhat (6%)

- Increase rapidly (3%)

- No answer (3%)

- Drop dramatically (less than 1%)

Three-fifths of respondents expect the rate of mergers and acquisitions among retailers to increase; 51% expect the rate of mergers and acquisitions among shopping center owners and managers to increase in 2001.

Compared with 2000, do you expect the rate of mergers and acquisitions of retail chains in 2001 to...

- Increase somewhat (56%)

- Stay the same (31%)

- Increase significantly (5%)

- Subside somewhat (4%)

- No answer (3%)

- Decrease significantly (1%)

Methodology, data collection and analysis for the 2001 Industry Forecast were conducted by Intertec Corporate Planning and Research. A total of 1,500 surveys were mailed to Shopping Center World subscribers.

The survey was sent to 750 shopping center owners and managers in addition to 750 finance and investment professionals with the title of CEO, president, partner or owner. Data was collected between September and November 2000.

In all, 276 completed surveys were returned, resulting in a 19% response rate. The survey reflects the opinions of the shopping center industry's top rung of professionals. Four in five respondents indicate their job title is owner, partner, president or CEO.

For more exclusive SCW research, see our Top Owners survey in the January 2001 issue.