A Breath of Fresh Air
Lifestyle centers evolve to meet shoppers' demands for convenience.
"From a new development point of view, it seems that
three pillars have decided that open air is the best: the
municipalities that are approving these new centers, the tenants who
are going in them, and the customers who are shopping in them," says
Michael E. McCarty, president of Simon Property Group's community
shopping center division in Indianapolis, whose company currently isn't
developing any enclosed retail assets. "Everything we're working on is
open air," he says.
Where shoppers decide
to shop, developers build "quickly, before consumers change their
collective mind. If necessity is the mother of invention, then the
shopping center business -- from both the development and leasing sides -- is the quintessential mother of invention," says Alan E. Smith,
executive vice president of Konover Development Corp. in Farmington,
Or reinvention as the case may be.
While not exactly innovative, today's open-air shopping centers offer a
contemporary twist on group retailing. Smith and other commercial real
estate professionals understand that open-air centers' new shapes are a
response to consumers' shopping patterns, retail economic trends, and
even shoppers' aesthetic preferences.
are quite a number of different trends converging on open-air centers,"
says Michael D. Beyard, senior resident fellow/retail and entertainment
at the Washington, D.C.-based Urban Land Institute. Perhaps most
notable is their emergence as major players in regional shopping areas.
While enclosed mall construction has slowed, open-air centers -- many
with as much or more retail space as traditional malls -- are enjoying a
brisk development surge.
Removing the Roof
Open-air centers and various hybrid concepts are popular with shoppers
and, therefore, developers. "We're seeing a range of projects,
including combinations of open-air and enclosed lifestyle centers
appended to malls or collocated with malls," Beyard says.
trend is growing among mall redevelopers as well. Many struggling
traditional mall owners are removing roofs, rearranging tenants, and
reconfiguring site plans to create open-air centers.
was built 30 or 40 years ago may not serve the market appropriately
today," Smith says. "In some cases it requires a redevelopment of the
property or, in other cases, a re-leasing of the property -- maybe you
have the wrong anchors. Then it's really incumbent on the owners and
the leasing people to understand the market and work with the tenants
that don't belong there to get them out, and work with the tenants that
do belong there to get them in."
that when the market makes sense," McCarty says. "There are some malls
where the market has just left, and there's not a lot of retail
opportunity there. You're probably better off considering an
alternative use for that property. Where the market hasn't left, the
consumer is still there, and it's still very viable from the retail
point of view, the answer is clearly to retool the asset and convert it
into an open-air environment."
Ehat, executive vice president and director of leasing for JBG
Rosenfeld Retail in Bethesda, Md., currently is "demalling" a local
1970s mini-mall that includes a grocery store and two now-departed
department stores. When the project is complete, half of one department
store will be demolished, and the remaining 40,000 square feet will be
converted into big-box space. The grocery will move to a new, 58,000-sf
prototype store; its current location will be turned into smaller
shops. All of the new tenants will face outward rather than inward.
clearly open-air centers are not a new concept, "what is new is the
scale of them, how large they're getting and the unique and different
mix of stores that you find in them," McCarty says.
New Tenants Mix Things Up
As open-air centers' physical configurations expand, so do their tenant
mixes. While some centers retain a similar-is-best approach -- lifestyle
centers seek high-end retailers, power strips get big-box discounters --
others successfully blend discounters, full-price stores, and
While such a mix may have
been taboo in the past, current shopper demands propel the shift. "Consumers are changing their habits in terms of how they want to shop,
when they want to shop, and where they want to shop," Beyard says. "And
this has major implications for the introduction of new forms of
Many centers are
morphing to meet consumers' demands. But, "Nordstrom can't fulfill all
those needs and neither can Target," McCarty says. "Why make [shoppers]
go somewhere else, if you can capture the demand that they have?"
Property Group is a prime developer of these hybrid centers, such as
the Waterford Lakes Town Center in East Orlando, Fla. The company
originally planned an enclosed mall for the 133-acre site, but it "determined that an enclosed mall would not be that unique in the
marketplace," McCarty says.
A 1.2 million-sf open-air marketplace with a mix of restaurants,
specialty stores, and 17 anchors -- without a conventional department
store among them. Instead, the center's anchors include Super Target,
Barnes & Noble, and OfficeMax, which mingle with more traditional
mall retailers such as Bath & Body Works, California Pizza Kitchen,
and the Children's Place.
counts on that property rival our best regional malls," McCarty says. "We have the same customer, but where they may make it to the mall two
or three times a month, they get to our project two or three times a
week because of all the goods and services there."
because enclosed-mall growth has slowed, retailers traditionally wedded
to that format now find themselves with limited options.
[a retailer] says, 'We go into regional malls,' and there are only
three new malls planned this year but they are going to open 50 new
stores, what do they do? They have to get comfortable [with the idea]
that they can do business in an open-air environment," McCarty says.
The Paradigm Shift
Shopping center tenant mixes started changing when department store
Montgomery Ward closed 250 stores in late 2000. "Montgomery Ward had a
lot of traditional mall locations, and in many of those cases, they
were replaced with a Target," McCarty says. When that happened, "Other
anchors in the mall weren't happy about it, but after a while they
said, 'Maybe this isn't so bad.' It was a paradigm shift of the
Around that time several
other regional chains went out of business, and national department
store chains regrouped and downsized, leaving shopping center managers
with empty anchor space to fill. While many were re-leased to
department stores, just as many ended up with different tenant types
A 2002 International Council of Shopping Centers Research Quarterly
study surveyed 132 shopping center owners about their reuse of Ward's
space. Department stores took 54 of the stores, and discount stores
leased 38. Uses such as home furnishings stores, apparel chains,
wholesale clubs, and supermarkets filled 30 others. In some instances,
owners subdivided the space: A two-story store got two tenants, each
leasing a floor. But in other instances, nontraditional retail anchors,
such as Target or Burlington Coat Factory, took the entire space.
In some cases, replacement
tenants are very nontraditional. John D. Spake, CCIM, president of
Spake Real Estate in Asheville, N.C., has filled numerous grocery
clients' empty shopping center stores. For example, he's placed six
post offices, which are "one of the best uses to turn around a dying
shopping center. It creates a destination that the public wants to
visit on almost a daily basis," he says. He also has filled the spaces
with medical offices, such as dialysis or physical therapy centers. In
those instances, surrounding stores and restaurants get a boost from
people passing time while friends or relatives undergo treatment. A
charter school, call centers, and churches are other nontraditional
tenants Spake has placed in shopping centers.
Self-storage facilities also are a popular reuse. "That's a trend I'm seeing in older centers where the retail corridor
has moved away," says Marc J. Blum, CCIM, CPM, principal and chief
operating officer at Next Realty in Northfield, Ill. The vacant spaces
lend themselves to this use because of their high ceilings, open floor
plans, column clearance, and loading docks, he says.
Shoppers Want Convenience and Ambience
A broader tenant mix is just one factor increasing open-air
shopping centers' popularity. Often the centers also are easier to
"People are time-starved," says Paul G. Fetscher,
CCIM, CLS, president of Great American Brokerage in Long Beach, N.Y. "You need to build places where people want to go that are convenient
and accessible." Open-air centers offer shoppers the chance to choose a
store, park near it, do their shopping, and be on their way.
Convenient access increases retailers' visibility as
well, says Clay Smith, executive vice president and managing director
of Staubach Retail Services Southwest in Dallas. "It's easier for
tenants to create their own image and style," he says. The outside
exposure is more likely to stick in potential shoppers' minds, "where
in an [enclosed] mall the only tenants who get exposure are the big
Retailers also like open-air centers for their lower
operating costs. "In an enclosed mall, you've got common-area
maintenance charges that can be as much as what your rent is," he says. "In an open-air mall, you don't have that." ICSC's The Score 2004 shows
that CAM expenses for more-than-200,000-sf open-air centers are 59
cents per square foot and operating expenses are $2.82 psf; CAM
expenses for enclosed malls less than 500,000 sf are $1.15 psf and
operating expenses are $11.94 psf.
While their convenience draws shoppers, open-air
centers also are designed to encourage customers to linger. Retail
experts call it a "sense of place" with wide sidewalks, inviting
architecture, and attractive landscaping. Some aim to duplicate a
nostalgic Main Street atmosphere; others try for something new. "I'm
seeing big-box, lifestyle, and convenience retail all rolled into a
sort of street-front concept. That's very new, but I think we're going
to see an explosion of these types of developments in the future,"
"It's all about the environment that's being created.
It used to be that just the merchandise reflected the kind of
environment you see yourself being part of; now it's everything about
the shopping center and everything about the store that reflects how
you see yourself, how you live, and how you want to live," he adds.
Fetscher concurs. "The business that we're really in
is how people feel about themselves when they're in our space. So we
need to create better experiences, which will be rewarded with a higher
frequency of customer visits."
Traditional malls don't offer shoppers the same
ambience or experience. "With an enclosed mall you haven't got a clue
as to where you are -- there's no sense of character, nothing unique
about it," Fetscher says. On the other hand, "you can't cookie-cutter
[an outdoor center's look] -- each one needs to interface with its city.
It's finding out what's unique and what has character in your area, to
finding the local restaurateurs and retailers."
To further encourage customer lingering as well as
provide a one-stop, all-in-one destination, the centers integrate food
and entertainment into the mix.
"The whole range of innovative food concepts is one
of the emerging success stories in shopping centers and will become
bigger and bigger," Beyard says. These concepts range from
marketplaces with local farmers and specialty produce providers to
flowers to all of the kinds of things you'd see in a city public market
years ago. I'm seeing a mix of gourmet and local specialty products and
the best of national chains. It's a very stylized, personalized mix
that includes sit-down restaurant clusters that can be extremely high
end or middle market. Upgraded food courts, fast-casual restaurants,
and even retailers that offer food service, such as bookstore cafes,
often complement these new concepts.
However, Fetscher cautions about mixing food and
entertainment tenants with customers' shopping patterns. Movie theaters
and high-end restaurants draw crowds, but primarily on weekends. "You
need a nice mix of casual restaurants and night spots -- a bookstore
poetry reading, guitar playing at Starbucks -- neat little things
that'll bring up the Monday-through-Thursday crowds when there's
moderate traffic at the screens," he says.
Mixed-Use Makes Sense
The addition of residential properties to open-air centers
provides a built-in market for the centers' attractions, experts say.
JBG Rosenfeld is working on a number of mixed-use
retail/residential projects, Ehat says. Currently, they are developing
a 140,000-sf retail/220,000-sf residential property in Herndon, Va. The
company also is working on a Whole Foods Market in Alexandria, Va.,
that will have three levels of condominiums above it.
is developing a mixed-use project on a former baby food plant site in
Asheville. "We basically took a plant site that was located in a good
retail corridor and worked with the city to rewrite a new zoning
district called the urban village district," he says.
Half of the 750,000-sf plant was demolished; he sold
the other half and 25 acres to a wholesale building supplier. On the
remaining 25 acres, Spake is developing an urban village concept -- a
mixture of 75,000 sf of retail and office space and 400 residential
units. The development will be a mix of free-standing buildings around
the perimeter with shared parking in the center; stores will front on
the street. Retailers will include national chains, such as Office
Depot and Hollywood Video, as well as local retailers and chain
restaurants. Office and residential space will be above the
ground-level retail; at the rear of the site, multistory residential
units will be built.
The proliferation of mixed-use developments is a
trend that probably won't go away any time soon. "Communities are
recognizing that they have to integrate their retailing in a more
efficient way with residential development, with other commercial
development, with a balanced transportation system," Beyard says. "This
is, of course, challenging. It's much easier to find a big open space
at the fringe of a metro area and build a big shopping center
surrounded by a parking lot. The process is slow and tends to be more
individualized than in the past."
However, these projects offer numerous advantages
despite the somewhat lengthy approval process. "The upside is that the
communities will benefit -- through more livable neighborhoods and
commercial centers," Beyard says. The sites also are more sustainable
for developers and investors "because there will be fewer opportunities
to abandon these properties and fewer opportunities for new fringe
construction that will suck the life out of [them]. We see it as a
win/win/win situation for the consumers, for the communities in
retaining their tax bases, and for the developers in maintaining their