Retailers eyeing the urban core


The tables are turning, and cities are starting to look better than suburbs to retailers.

Why?

“Density cures a lot of problems these days,” says Gerald Crump, Weingarten Realty central region vice president and director. “Retailers are willing to pay more for urban infill sites where they don’t have stores, rather than greenfields.”

Greenfields are massive expanses of undeveloped land, usually on the outskirts of a city or metropolitan area. Up until the recession, these areas were hotbeds for new retail developments.

These days, however, the commercial real estate realm is focusing on urban infill — filling vacant spaces in cities rather than constructing new spaces on far-flung vacant land.

It’s not that people have stopped moving to the suburbs; it’s just that they are thinking twice about moving away from urban areas like our neighborhood, and sometimes people are even deciding to move from the outside in. The result is that “everyone is looking inside the loop, because you’ve got a growing density of population. Sometimes everybody wants to go and get part of the urban world — it’s a reversal of how we grew to the ring cities,” Young says.

Crump recently attended a conference attended by top retailers, the kinds that typically anchor shopping centers. They asked when new construction would start up again, and Crump’s response was a question: “When are you guys going to pay new development rents?” He already knew the answer: Not until themany vacancies left in the wake of the recession are leased.

These vacancies, sometimes called “second-generation spaces”, are leasing in Dallas-Fort Worth, Young says. Another switch from the greenfield era is that retailers are no longer limiting themselves to a prototype store that they can plop onto a developing property. One factor that made undeveloped suburbs so enticing to the so-called big-box stores — the Targets and Office Maxes and Old Navys of the world — was the difficulty of finding enough existing real estate for such prototypes in cities. But “all merchants are looking at new formats in this economy, and that’s going to help us lease up the empties,” Young says.
One good example is grocery stores. United Commercial Realty handled roll-outs for 11 new Sprouts Farmers Market locations and nine Aldi’s grocery store locations during the past two years, and both stores “back-filled a lot of old grocery spaces,” COO Jean Smith says.

Target and Kroger have urban formats, he says, and the businesses are looking to move into reemerging urban markets where young singles and empty nesters live. Target’s urban store, called CityTarget, can wedge into spaces as small as 60,000 square feet, Smith says, compared to a typical 85,000-square-foot SuperTarget.

“We don’t need 10 types of ketchup to choose from,” says Kent Arnold of Henry S. Miller. “Everyone’s getting smarter, and so the 60,000-square-foot store can go into 30,000 square feet — and it is.”

Walmart will be a major player in the urban infill grocery store market. Smith cites statistics that Walmart has grown from 8 percent of the grocery market in 2001 to more than a third of the market today, and the company has plans for an even smaller store than its Neighborhood Market concept.

“They were the first ones to do a supermarket, and they were the first ones to scale back,” Arnold says. “They will always be the trendsetter.”


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