Shopping Center Business

MAY 2016

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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Page 186 of 358

LEASING 182 • SHOPPING CENTER BUSINESS • May 2016 W ith a significant number of department stores and other large-format retailers strug- gling and closing stores, owners and developers need to be proactive about filling those spaces. But larger spaces can be tougher to fill — due to a relative scar- city of potential replacements, as well as challenges associated with unusual and limiting layouts and floor plans. Consequently, owners and developers need to be deliberate, strategic and cre- ative about how to fill those gaps. New concepts and new retailers offer some potential candidates and, increasingly, non-retail uses such as entertainment and multifamily have become more prevalent in what were previously more traditional retail centers. So what large-format replacement op- tions are available? What creative non-re- tail uses are the most promising, and what do owners and developers need to do to ensure that those uses are a good fit for their center? Answering those questions may give us some insights into what the next generation of retail spaces will look like. NEW AND EMERGING OPTIONS One of the ways landlords are effective- ly filling power center vacancies is through a wide range of emerging concepts capa- ble of slotting in to those larger spaces. Kroger's new specialty grocery concept Main & Vine is one of a long list of gro- cery options that includes new names like Whole Foods 365 and expanding brands like Sprouts and ALDI. Total Wine & More is another bigger-box retailer that continues to expand, as well. Outside of the grocery sector, brands like DSW and Ulta Beauty (both of which are ramping up new store development), Macy's Backstage, and potentially Kohl's — which is planning to test out a new smaller format — are the kinds of retailers that fill larger vacant spaces. Additional- ly, Forever 21's new F21 Red concept has largely taken mall locations, but is also be- ginning to look at power center locations. When it comes to department stores, the options are much more limited and the leasing calculus becomes more complex. CREATIVITY AND VARIETY The list of non-retail solutions that de- velopers have used to replace closed or underperforming department stores is ex- tensive. From educational and institution- al uses to medical facilities, different solu- tions have been attempted — with varying degrees of success. In recent years, inte- grating new residential, entertainment, hospitality and restaurant elements has become the preferred strategy for many developers. One former Macy's location in down- town Pittsburgh has been purchased, and is in the process of being wholly convert- ed into a $100 million multilevel retail and mixed-use space that includes a 155-room hotel, 312 luxury apartments, and a range of entertainment and restaurant options. Southdale Mall in Edina, Minnesota, has undergone a comprehensive restruc- turing that includes a new food court, more diverse retail options and a luxury apartment development built right into the mall parking lot. At the nearby Gal- lery at Edina, a Westin hotel is attached directly to a traditional enclosed mall. Other centers have eschewed the add- on method, and have attempted to execute a more comprehensive and sophisticated transformation, electing to reposition traditional retail centers as experiential mixed-use environments. The Mosaic Dis- trict in Virginia is one such project, where an aging movie theater was downsized into an independent art-house theater with retail boutiques, townhomes and an array of dining options. The Town Cen- ter of Virginia Beach is another project that has been around for some time and has elected to continue to densify by responding to vacancies with ad- ditional office, hotel, residential and new retail components. Partly as a result of this approach, the line has been blurring between a lifestyle center and the spe- cialty retail compo- nent of a mixed-use development. THE MARKET — NOT THE FORMAT No matter how developers choose to respond to de- partment store closures and other large vacancies, it is critically important that they build to the market, not to the for- mat. The potential is different at every site and in every market. In some cases, convenience retailers like gyms, health clubs and pharmacies have taken newly available spaces. While educational and medical uses are still in play in certain markets and in select circumstances, res- idential, hospitality and entertainment concepts have emerged as more popular and reliably viable candidates. Generally speaking, creative replace- ments have helped developers move away from the typical formulas associated with power centers, neighborhood centers and regional malls. Developers are finally building to the potential of the market, which is undoubtedly a good move for the overall value of their property portfo- lio. In some cases where residential and hospitality uses have been introduced, grocery-anchored community and neigh- Big Shoes To Fill Developers are thinking strategically and creatively about how to fll large open spaces in their shopping developments — and creating new projects and paradigms in the process. Jeff Green and Jerry Hoffman Green Hoffman

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