Do not fear – innovate!
By: J. David Chapman/January 27, 2022
Kroger Grocery announced it was returning to Oklahoma after many years of absence.
This announcement is good, but in itself it is not that big of a deal. What is a big deal is what it refused to talk about, and that is how it is returning. What it was not so forthcoming in saying is its strategy into new markets including Oklahoma is a delivery/pickup model with few, if any, retail operations.
It certainly looks like it is going to be less dependent on retail locations and more on delivery services. This is a direct result of the COVID-19 situation of the last few years.
I also have seen another interesting COVID-19 effect in food. I have had several restaurant customers ask me for unusual types of buildings and locations for new operations. The buildings and locations are not convenient to customers and not buildings with any pizzazz. What they are asking for, and setting up, are “ghost kitchens,” which are built specifically for cooking and not for serving the food they cook. These meals will be delivered similar to what “mobile meals” kitchens have done for years.
Technology, innovation, and COVID may be changing the three most important words in real estate. It has been said that those words are location, location, and location. Location will still be important to most commercial property; however, this paradigm shift of delivery and pickup has changed restaurants and grocery operations forever. While we will still want to occasionally sit down for a meal and interact socially with friends and family, it is clear that the delivery/pickup model will survive after the pandemic passes.
What does this mean to real estate? It will simply continue the trends we have seen in internet shopping and pandemic practices. Industrial space will continue to be in demand and these operations will expand and be in short supply. The retail rector will not disappear, but will struggle with occupancy, and the best locations and buildings will survive.
My advice to my colleagues is to watch for other industries similar to restaurants and grocery that have been forced to innovate and create new business models, and try to predict the effect those new models will have on the real estate industry. We must innovate, create, and support them, to not only survive, but to thrive.
J. David Chapman is a professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).