Retail

Down, but not Out

Retailers push forward with new construction projects.

Retail construction is a shadow of its former self with development activity falling to its lowest levels in more than a decade.

Yet pockets of construction persist. An estimated 32 million square feet of new retail space is expected to be built this year, according to Marcus & Millichap. Much of the new space is user-driven development fueled by continued expansion from retailers such as Walgreens, Costco, and Sam’s Club.

“We are seeing development return with new Target- and Walmart-anchored developments,” says Jonathan E. Lindsey, CCIM, a broker with The Shopping Center Group in Birmingham, Ala.In suburban Huntsville, a new Target is set to open in second quarter and a new Walmart supercenter will be completed later this fall. In addition, smaller strip centers sized at about 20,000 sf are occurring in select infill locations throughout central and northern Alabama.

The return of apartment development is sparking spin-off ancillary retail opportunities in some metros. An estimated 85,000 apartment units are expected to be completed this year, according to Marcus & Millichap. For example, a 156-unit apartment complex is underway in Kent, Wash. “That is going to bring in a lot of people. So a lot of the activity that we’re seeing is coming from tenants who can provide services, such as dry cleaners, insurance agents, and restaurants,” says Chad Gleason, CCIM, a principal at Real Estate Investment Services in Kent.

Mixed-use development is another niche that has seen an uptick in activity across major markets such as Washington, D.C., Boston, and New York. “Urban and mixed-use retail is hot, hot, hot!” adds Steven K. Graul, CCIM, president and principal broker at Innovative Concept Associates in Reston, Va. Restaurants have been boosting leasing at mixed-use projects such as The Wharf, a 335,000-sf mixed-use redevelopment project proposed along Maine Avenue and Water Street in Washington, D.C. The project, which is being developed by Madison Marquette, is tentatively planned for completion in 2015.

As is evidenced with these and other projects, talk is slowly turning to development opportunities for 2014 and beyond. In the meantime, the lack of significant completions in the near term has helped to accelerate recovery as retailers continue to absorb existing space.

Beth Mattson-Teig is a freelance business writer based in Minneapolis.

For more on the retail market, read “Rethinking Retail” in the May/June 2012 issue of Commercial Investment Real Estate.

Beth Mattson-Teig

Beth Mattson-Teig is a business writer based in Minneapolis.

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