In August 2024, a significant transformation continued to unfold in the retail real estate sector. Retailers, once focused solely on brick-and-mortar locations, are increasingly integrating online and in-store experiences, leading to a hybrid retail model that is reshaping how landlords and tenants approach leasing. The ongoing rise of e-commerce, combined with evolving consumer behavior, has forced retailers to rethink the traditional retail space, pushing them toward smaller, more adaptable storefronts that blend physical shopping with digital integration.
A report by Deloitte published in August 2024 revealed that 45% of U.S. consumers now use digital tools—such as mobile apps, QR codes, and in-store kiosks—while shopping in-store. This growing trend has led many retailers to reimagine their stores not just as places to browse and purchase, but as experiences that seamlessly connect the online and offline worlds. The concept of the “showroom” has gained popularity, with retailers using smaller physical spaces for product demonstrations, displays, and experiences, while completing transactions online.
For landlords, this shift presents an opportunity to adjust their leasing models to meet the changing needs of retailers. Traditional large retail spaces, once the cornerstone of the sector, are increasingly being replaced with smaller, more flexible spaces that support experiential shopping. Retail landlords are adapting by offering shorter-term leases and more customizable retail spaces that cater to the hybrid model. In August 2024, Knight Frank reported that nearly 40% of new retail leases signed were for smaller spaces, in part due to the rise of this hybrid retail approach.
Retailers, on the other hand, benefit from this new approach by being able to maintain a physical presence while simultaneously reducing overhead costs. By embracing the showroom model, retailers can cut back on large inventories and focus on creating unique in-store experiences that attract customers, while fulfilling orders through e-commerce. This enables them to reach a broader audience without the financial burden of large, standalone stores. Additionally, they can use technology to enhance the in-store experience, offering options such as online ordering for in-store pickup or digital personalization features.
While the shift to hybrid retail spaces is most noticeable in major metropolitan areas, secondary markets are also seeing the rise of smaller, tech-enabled retail spaces. Cities like Austin, Texas, and Denver have experienced an increase in demand for hybrid retail leases, as businesses seek to capitalize on the more affordable rental options outside of high-rent areas. Retail landlords in these secondary markets are now offering spaces that can accommodate digital tools and provide flexible layouts for retailers.
As we move further into 2024 and beyond, it is evident that hybrid retail spaces are likely here to stay. This model not only provides cost benefits for retailers but also aligns with the growing demand for digital and physical integration in the shopping experience. For landlords, this shift requires adapting to smaller, more versatile spaces and offering short-term, flexible leases to accommodate tenants’ evolving needs. For tenants, the ability to blend in-store experiences with e-commerce capabilities will enable them to stay competitive in an increasingly digital-first retail environment.