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Retail development has faced significant challenges in recent years, but the future looks promising, driven by the use of artificial intelligence (AI) and smarter decision-making.
We spoke with Ben Freeman of ThirdShore Development and Ben Witten of Placer.ai about how AI is shaping retail development. As we look to the next three to five years, it's clear that AI will have a big impact in modernizing the retail real estate industry.
The Challenge of Rapid Expansion
One of the biggest hurdles in retail and restaurant sectors today is rapid expansion. “Many companies are under pressure to open new locations within tight timeframes, sometimes as short as 12 to 36 months,” Ben Witten noted.
However, rising costs and limited access to capital have made this pace of expansion challenging. Adding to the difficulty, according to JLL, there is a limited amount of new supply in the retail market, driving leasing activity down 14.5% from the previous quarter.
From the perspective of property owners and developers, this situation presents both a challenge and an opportunity. With limited new properties available, owners can be more selective in choosing tenants. They can focus not just on tenants who pay high rents, but on those that complement existing stores and create a unique retail experience.
For instance, placing a fitness center near a grocery store, as one developer did with data insights from Placer.ai, led to increased sales for both businesses by drawing different, but complementary, customer bases.
The Power of Data with AI
Data is transforming how businesses make decisions in retail real estate. AI-powered tools offer detailed insights into consumer patterns like:
- Consumer behavior,
- Traffic patterns,
- Co-tenancy dynamics,
- And even online sales data.
Retailers and landlords can make smarter choices about how to optimize their spaces and tenant mixes. This shift toward data-driven decisions helps retailers identify optimal locations for new stores, effectively manage their footprint, and optimize their omnichannel strategies.
Traditionally, the real estate industry has been slow to adopt new technologies, but the tide is turning. As Ben Freeman mentioned, the industry lagged in adopting tools like AutoCAD or BIM, and the same was true for AI-powered data.
But now, data is becoming an integral part of retail strategy. Freeman emphasized that the focus is no longer on opening as many stores as possible, but on ensuring each location is optimizing for profitability using smarter insights: "You don't have to do 500 locations to reach your customer in malls and strip centers and power centers. You can try to do the right 50 to start, right? How are you really driving and growing your business?"
Data Democratization for Retail Real Estate
Beyond optimizing site selection and demand generation, AI fosters greater collaboration within the real estate industry, traditionally characterized by distinct sectors operating in silos.
Witten elaborated on this, stating, "AI is, especially in retail, this whole idea of like democratizing data and making it widely available and standardized, allows market participants to be, in some ways market agnostic.”
AI-powered platforms like TestFit and Placer AI provide a common ground for understanding complex data sets and analyzing factors across different asset classes. This data democratization empowers developers, investors, and retailers with a holistic understanding of market dynamics, enabling them to identify new opportunities, mitigate risks, and ultimately make more strategic decisions.
The Future of AI for Retail Development Is Now
As the retail landscape evolves, one thing is clear: the future is already here, but it’s not evenly distributed. The technology and data necessary to make better decisions are already available, but the challenge lies in implementation. While the industry may be slow to adopt change, those who embrace data and innovation now will be best positioned to lead in the coming years.
