The International Council of Shopping Centers defines a power center as having “category-dominant anchors, including discount department stores, off-price stores, wholesale clubs, with only a few small tenants.”
Perhaps it’s time to update this definition.
Back in the early 1980s when the first power center is said to have been born (280 Metro in Colma, CA), category killer retailers were all the rage. Developers took note and responded by developing shopping centers that brought these retailers together in a single large center. Throw in a few smaller shops and restaurants, and the power center took off.
According to the book Shopping Centers and Other Retail Properties: Investment, Development, Financing and Management, “The result was a center with the power and strength to draw people from a long way for destination shopping.”
When the last “Great Recession” hit and the economy went sour, several category killers like Linens ‘n Things, Circuit City and Borders began closing doors, and those that didn’t close began to, and continue to, shrink store sizes. Power center landlords and developers were faced with making changes in order to keep these centers afloat. As are result, the traditional power center, with giant anchor/box tenants like Walmart, The Home Depot, and Target and junior box tenants like PetSmart, Office Depot, and Ross, has morphed in to something new.
Recently many of the traditional big-box tenants have turned to reducing their store size by 10- to 15 percent or more requiring them to take less space in shopping centers. Shrinking store spaces come as a result of retailers seeking cost savings and efficiency, more efficient merchandise plans, better back-room delivery options, and meeting omni-channel challenges. Examples of retailers opening smaller stores include Walmart, Target, and Staples.
And it’s not only the retailers making changes. Several of the owners or buyers of power centers are downsizing these tenants or relocating them within the center to create a value-add opportunity to add some non-traditional power center tenants like grocery stores (where restrictions allow) and splitting up larger boxes into smaller units to bring in more shop space tenants.
According to Kyle Stonis, CCIM, senior vice president in SRS’ Atlanta office, “With the economy and real estate fundamentals recovering, owners are now taking advantage of the new smaller footprints of most national big box tenants by downsizing their existing spaces and back-filling the excess square footage with higher-rent-paying national and regional junior box tenants. This in turn increases the bottom-line net operating income of the center and pushes value in an already compressed market.”
One example of a power center taking these actions is City Crossing in Warner Robins, GA. According to Stonis, the landlord back-filled a Steinmart store with a HomeGoods store and a new junior anchor (identity cannot be disclosed at this time).
City Crossing in Warner Robins, GA
As Stonis summed it up, “Power centers have experienced a significant compression in caps rates over the last 12-18 months. This is an effect of the availability of attractive non-recourse financing and lessening concerns over the strength and health of these box stores.”