West Elm to make Alabama debut
Brooklyn, N.Y. – West Elm, a division of Williams-Sonoma, will open a store in Birmingham, Ala., on Thursday, Oct. 10. The 8,000-sq.-ft. store is located in The Summit Birmingham shopping center.
“We are excited to open our first store in Alabama and support the local handcrafted community by featuring the work of Birmingham artisans in our store,” said Jim Brett, president of West Elm. “We recently made a two-year commitment to significantly increase the amount of handcrafted products we offer, and to roll out locally crafted assortments in all of our stores worldwide. Birmingham is in the first group of our stores to offer this assortment. ”
99 Cents Only to open Arizona store
City of Commerce, Calif. – 99 Cents Only Stores is opening its first store in Maricopa, Ariz., on Oct. 10. The new store is approximately 11,615 sq. ft. and will feature a perishable food department, including produce, dairy and frozen foods.
99 Cents Only currently operates 331 retail stores consisting of 238 stores in California, 44 in Texas, 32 in Arizona, and 17 in Nevada.
Re-Inventing Power Centers
Power centers have proven themselves to be a resilient asset class in recent years. First the recession cut into business. Then e-commerce leveled some of their big-box tenants, hurt others and ignited a downsizing trend.
Yet research from Washington, D.C.-based CoStar Group shows that only 2% of power centers have vacancy rates of 40% or higher and probably won’t recover. Another 6% have vacancy rates of 20% to 40% and are in serious condition but may recover.
After all the carnage, only a little more than 2% can’t recover? How can that be?
“The reality is that good real estate stays occupied or gets re-leased quickly,” said Joseph Tichar, senior VP corporate operations with Beachwood, Ohio-based DDR Corp. “Take Circuit City for example. Circuit City had very good real estate, and when business stalled many other retailers wanted that space.”
Changing tenant mix, changing trade areas
Big-box bankruptcies and decisions by other big boxes to close stores and shrink footprints have significantly altered the tenant mix of many power centers.
“We’re seeing uses that typically wouldn’t have been in a power center becoming successful anchor and junior anchor tenants,” said Jeff Holland, president and COO of Phoenix-based Cole Real Estate Investments. “This includes dollar stores, specialty grocers and fitness centers. These retailers can be great traffic drivers and add tenant diversification that appeals to consumers.”
Holland also noted that tenants in the furniture and home goods categories had recently begun to expand again.
Cole’s Eastland Center in West Covina, Calif., provides an example. Cole acquired the 805,000-sq.-ft. power center in May 2012 from The Westfield Group for $147 million. The infill location with a densely populated trade area was 100% leased at the time.
But tenants were cycling through. In addition to several replacement tenants that arrived prior to Cole’s acquisition, Cole replaced several other tenants following additional turnover.
Ashley Furniture came on board, and Wal-Mart opened a two-level store with a grocery component.
BevMo! wanted space at the center, and signed a lease for a smaller footprint than usual just to get in.
“As demographics within trade areas change, so do the needs of the consumer being served by the local power center,” Holland said. “Owners and managers need to watch these changes and proactively manage the tenant mix. This could lead to more ‘hybrid’ power centers with shopping, dining, grocery, fitness and entertainment all in one location.”
Power neighborhood centers
Tom Lithgow, president and CEO of Oak Brook, Ill.-based Inland American Retail Management, agreed that new tenants are changing power centers. “We’re calling them ‘power neighborhood centers,’” he said. “The big-box components remain, but we’re adding necessity-based retail such as grocery.”
The experience of Inland’s The Pavilion at Hartman’s Heritage Center in Independence, Mo., illustrates Lithgow’s point.
Inland acquired the 223,473-sq.-ft. center in 2007. It was 95% leased. Tenants included Thomasville furniture, Bassett furniture, Pier 1 Imports, Linens ‘n Things and Stein Mart.
“With the housing crash and recession, the furniture stores closed, Linens ‘n Things went out of business, and Stein Mart closed out of this market,” Lithgow said. “Suddenly we were only 50% to 60% leased. We had to redo the entire tenant mix. We brought in Bed Bath & Beyond (33,000 sq. ft.) and its buybuy BABY (28,000 sq. ft.) concept.”
Next, Inland looked to non-traditional tenants like Aspen Athletic Clubs, which took nearly 26,000 sq. ft. “We’re back to 88% leased,” said Lithgow. “Now we’re looking for necessity retail like a gourmet grocer.”
The center is using entertainment and events to bring people in and, in turn, to attract retailers to take more space. “We have farmer’s markets and community days,” said Lithgow. “The best idea so far is Classic Car Night with Jim T’s Summer Cruise. It took some negotiating with the retailers but now cruise nights attract a ton of shoppers. People come to look at the cars and shop.”
Super-powered regional centers
DDR’s Tichar noted that super-regional power centers with 500,000 sq. ft. to 1 million sq. ft. and national tenants with excellent credit had few if any long-term vacancies compared with smaller-format power centers in tertiary markets lacking a regional draw.
“Take our Shoppers World in Boston,” Tichar said. “It’s a large-format center with more than 700,000 sq. ft. It is market-dominant with a strong merchandise mix that produces a large regional draw.”
The trade area houses a population of 920,400 and boasts an average household income of $126,700.
Those demographics have attracted and maintained a list of strong national retailers. Current tenants include T.J.Maxx, Marshalls, Kohl’s, PetSmart, Best Buy, Old Navy, DSW and Nordstrom Rack.
Nordstrom Rack quickly replaced Linens ‘n Things when that chain closed its stores. The occupancy rate today is at 100%, and there is still a waiting list to join the merchant lineup at this center.
National tenants and strong real estate also strengthen growth prospects for owners. At a time when most power center development has stopped, DDR opened Belgate Shopping Center in May. Anchored by IKEA and Walmart, the newly developed 890,000-sq.-ft. center has already filled up.
In the end, no one has been immune to the economic headwinds, but strong real estate, strong demographics and creative thinking are enabling power centers to overcome and, even, thrive.