In the Atlanta market, as well as nationwide, retail property developers and managers, along with mall and shopping center owners, are coming up with creative responses to the rash of store closings in recent years by big-box retailers, such as Borders, Circuit City, Linens & Things and Blockbuster – a phenomenon largely spurred on by the tsunami-scale shift among consumers and merchants toward e-commerce.
Generally, more successes in minding the retail gaps are being reported by owners of intown property locations as opposed to outlying markets.
Simon Property Group Inc. recently pulled out of its ownership position in Gwinnett Place mall, as the huge shopping complex struggles to pay its bills and compete with Discover Mills and the Mall of Georgia, both owned by Simon.
“Retail is constantly changing,” said Ray Uttenhove, executive vice president at SRS Real Estate Partners. “If retailers are not in a position to adapt to changes, they are probably not going to be successful, and ultimately they will not survive.”
During the first quarter, according to the U.S. Retail Outlook Q1 2012 report published by Jones Lang LaSalle Inc., Atlanta’s shopping center market showed a 14.9 percent vacancy rate with 209,191 square feet of net absorption, an average rent rate of $13.07 per square foot, and a year-over-year average change measured at minus 1.7 percent. The numbers for malls showed a vacancy rate of 5.3 percent spread over 33,993,672 square feet, with a vacancy rate at 5.3 percent, average rent at $20.03 per square foot, and a year-over-year change of minus 3.4 percent.
Despite the relatively uninspiring numbers, among the “Key take-aways” highlighted in the JLL report was the observation that “… markets with the strongest population growth and job creation, metropolitan areas like Atlanta, Phoenix and Las Vegas, are expected to bounce back.”
Uttenhove cited Lenox Square as an example of a shopping center that hassuccessfully adapted to changing economic conditions to remain a thriving enterprise over the decades. Looking at Gwinnett Place, she speculated the mall’s travails could be linked to overly optimistic projections by planners and developers.
“In submarkets and areas where there has been a lot of retail development, there was just too much of a good thing,” Uttenhove said.
In Buckhead, Selig Enterprises Inc. is backfilling the former Borders space at Buckhead Triangle across from Phipps Plaza with The Container Store, relocated from Selig’s Buckhead Square. Selig is also bringing in Indiana-based electronics retailer hhgregg, which is moving into the space formerly occupied by Circuit City.
“As a generalization, yes, it’s more difficult to fill an outlying or suburban space, but, more importantly, you have to focus on what segment is not being served in the market,” said Scott Selig, company vice president. “For as many large boxes that are going out, there are still boxes that want to come in.”
At North American Properties, which includes managing Atlantic Station in Midtown and developing Avalon Park in Alpharetta in its portfolio, partner Mark Toro said his company has essentially retooled operations in response to two demographic trends.
One is the next generation, Gen Y, the largest generation in history, and the echo boom, 77 million strong, desire living in heavily amenitized urban communities, Toro said. Retailers are responding to this trend, as well as to being stung by chasing what Toro described as “bleeding-edge growth,” by expanding almost exclusively into high-density urban markets.
With land values reset, retailers are taking advantage of locations “they could not previously consider because of the cost,” Toro said.
The second trend, he said, is the impact of e-commerce on retail sales and consumer buying habits. U.S. online sales will reach $224.2 billion in 2012, representing a 15 percent increase over 2011, according to the JLL Retail Outlook report.
“In 1999, when we built Borders and Toys “R” Us at the Mall of Georgia, we were definitely afraid of e-commerce,” Toro said. “It took 13 years, but, lo and behold, Borders is gone, and who knows what’s coming next?”
Toro and his partners are turning their attention to retailers with a proprietary brand, such as Athleta, which will be opening its first Georgia location in the fall at Atlantic Station, and Brooks Brothers.
North American Properties is also a strong proponent of the “experiential retail” concept, which has enthralled the retail industry.
“Whether it’s Orvis conducting a fly fishing lesson, Athleta giving yoga lessons or Sur La Table doing cooking demonstrations, retailers are recognizing that to get customers out from behind the computer screen or tablet, they have to provide an experience in the store,” Toro said.
Filling Borders
Nationwide, as of April 2012, one-third of the spaces formerly occupied by Borders were still vacant (including those with tenant interest but no letters of intent). Among the leased spaces are:
Books-A-Million/Half-Price Books (largest number of spaces)
Six college bookstores
Grocers (Whole Foods, Fresh Market, Sunflower Market, Earth Fare, Aldi), many of which adjusted their footprints to fit the available space.
Ross, DSW, Forever XXI, H&M, Sports Authority – each of which took as many as six locations.
Numerous other big-box merchants – The Container Store, Total Wine, PetSmart, Dick’s Sporting Goods, Golf Smith, HomeGoods, REI, Cost Plus, Marshalls, DSW, Ulta, Steinmart – have also leased spots.