It’s been said before that the only consistency in life is change. While this is undoubtedly true of our personal lives (ahem, GoT fans!), it’s never been truer of the retail industry as well. With such a distinctive exodus happening in the retail market, this entire sector has experienced an enormous shift.
This change in dynamics has created a unique trickle effect—and it might catch some professionals off guard. With that said, here’s what you need to know about how the ever-changing retail industry could affect your insurance policy.
How Retail Value Has Declined
“Restructuring” is the term being used for what’s occurring in the retail sector. In many people’s opinion, this is an overly kind way to say that malls are becoming ghost towns. Yet, declaring a national shopping center to be a Wild West dead zone might be overreaching, too.
Nevertheless, in recent years, this retail restructuring has created an immense amount of vacancies in the real estate market. Vendors are packing up shop and leaving the market, which has produced falling rent, too. Interestingly, vacancy rates in the retail real estate market are flat in Q1 2019 compared to Q4 2018 at 10.2%, according to real estate research firm Reis Inc.
Consider the recent Sears closures of over 24 mega department stores. And that’s just for starters. Other major retailers are announcing store closings, too. A few examples of iconic brick and mortars losing out to e-commerce include:
- Lord & Taylor
Empty stores and lots have been negatively affecting the national real estate market. The past few years have looked especially bleak for the retail landscape. Yet, it’s not as if there’s no push back.
How Retail Is Evolving To Push Back
As mentioned, mall real estate value is hemorrhaging but not completely dead. Some would argue that the old mall model is on life support. With such a lack of vibrant life in the retail scene, landlords are pushing back against the weak pulse. And who can blame them?
In years past, department stores filled up half of any mall while apparel and accessory vendors filled up the other half. This type of environment was the place to be, creating an unrivaled “it” factor…until now.
Unsurprisingly, it’s blatantly obvious that this structure simply isn’t working any longer. Rather than beating a dead horse by establishing more department or apparel and accessory stores, savvy landlords have started to evolve in innovative ways. Even though malls will never lose the traditional retail influence, the idea of adaptive reuse is becoming more prominent.
For example, plenty of landlords are opening up their spaces to offices, storage, residential units, and even e-commerce fulfillment centers. Healthcare isn’t taking a backseat to this restructuring, either. A handful of malls are filling spaces with doctors and hospital groups.
Although an infant concept, some malls are beginning to take on a theme such as fitness or health. As you may have guessed, the spaces in these experimental trends include gyms and other health-themed vendors. Focusing on out-of-the-box inhabitants, the retail real estate market will hopefully rebound.
How These Trends Influence Your Insurance Policy
As the retail landscape evolves, those involved in the industry will need to grow and adapt as well. Mostly, because not everything is so cut and dry. Retail neighbors aren’t selling the same style shirt anymore, for example. They might not even be selling parallel products.
What these trends mean for a shopping center insurance policy is that there are numerous things that could be thrown into the consideration hat. However, three factors tend to top the insurance priority list.
Naturally, the first thing any broker looks at is who exactly is in the shopping center—the tenants. Furthermore, what type of risk do these tenants run?
For example, a high-hazard gun store is going to run many different risks than a smoothie shop because of the potential for theft and vandalism. Or, with injuries from slips and falls as one of the most reported claims, a restaurant with a hefty parking lot is going to have more associated risk than a small vendor selling skincare products.
A great broker will delve into the nitty-gritty of a tenant’s setup and business structure to size up appropriate risk. After all, writing a shopping center policy requires a customized approach, and examining the specific tenants is the first thing on any broker’s to-do list.
Many people fail to think about weather patterns when it comes to the retail industry. Yet, it’s one of the biggest influencers in terms of defining a solid shopping center policy. Keep in mind that each region has its own unique weather patterns, which present multiple risks at different times in the year. So, this factor can be complicated. Working with a knowledgeable broker is your best bet.
Referring back to the aforementioned restaurant, extreme winter ice could easily make that parking lot a high-risk zone. Wind damage is another common risk that retailers face. With windstorms causing over $1 billion in damages per year in the U.S., address that particular risk is a must for any seasoned broker.
It’s safe to say that not all neighborhoods are created equal. Just as each city or region has its own vibe, they each have their own demographics, too. This is the type of data that will impact a shopping center policy.
Consider that more claims are reported in economically depressed areas than in any other. To take it a step further, these are the areas pegged as at-risk regions. Of course, many of these regions are also considered high-crime areas as well. It’s no surprise then that information specific to a region would impact coverage so intensely.
Although these three factors are the most commonly considered when writing a shopping center policy, there are often many other questions on the table.
Additional Factors Impacting a Policy
It’s the distinguishable characteristics of a shopping center than most people fall in love with. Shoppers enjoy having an array of eateries from which to choose or having the chance to watch the newest release on the cinema after a shopping spree. Yet, these are additional factors that potentially impact a shopping center policy.
Having distinguishable characteristics however, often equates to a very diverse tenant base. Which, creates diffusion and a more attractive property for the insurer. For example, the shopping center could be considered a specialty insurance risk when property limits are high. Other factors to be considered include:
- Outdoor risk exposure
- High-hazard risk
- Building structures or spaces without windows
- Unseparated significant square footage
- A cluster of content value
It’s important to keep in mind how liability exposure and crowd control fit into the big picture as well. This is where parking lots, food markets, eateries, bowling alleys, cinemas, and other attractions would require deliberation.
An experienced broker will take the time to consider the main three factors that could impact a shopping center policy—tenants, climate, and region. To cover all the bases, plenty of other variables could be taken into consideration as well. Not only will this offer more financial security but it will help to bolster the retail industry, too. Which, in turn, will call for more adaptation from the retail real estate market as well as the insurance space.
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