Asphalt

For years, that has been the most striking decorative element greeting shoppers at power centers. These developments were designed with a single goal: to let nothing get between the consumer and the big-box retailer. And it worked. As big boxers such as Target, Home Depot and Bed Bath & Beyond grew, they made power centers a hugely successful retail real estate format.

But something new is happening. A handful of forward-looking developers have seen that the crowds coming to power centers are not all that different from the folks who shop at the regional mall down the road. Even if they're looking for a bargain, these consumers appreciate some amenities — a few restaurants, some entertainment and a little greenery.

So, by spending a little more on construction costs and putting a lot more thought into the total shopping experience, these developers are creating a new format that brings classic features of lifestyle centers to big-box venues. They're adding everything from climbing walls to movie theaters, even jogging paths — and attracting some of those inline tenants from the mall.

The result is a new hybrid. Call it the Power Town. It could be the next force in shopping center development — raising the ante for power center developers and changing the relationship between these big-box heavyweights and their mall and lifestyle competitors.

The concept seems a logical evolution. For all the success of big-box retailing, power center developers have not made the most of their properties. Consumers spend more money at centers that offer more choice and diversion. And lifestyle centers are the obvious formats to emulate:

According to data compiled by the ICSC, consumers spend more money and visit more stores at lifestyle centers than malls. So, by combining value, convenience and leisure — the top three motivators for consumers — a power town should have the broadest appeal.

There are other considerations as well. The power town concept provides a common ground for municipalities and developers. The developer can sign on the big boxes it knows will appeal to the consumers. And, by winning some public space and other amenities, public officials can get the tax revenue they want with less resistance from voters who don't want an eyesore in the community. For developers, the power town format adds high rents from inline specialty retailers. Big-box retailers win, too, because the new format draws consumers from a wider circle of households.

What defines a power town? The power town is usually larger than a power center, which often maxes out at 800,000 square feet.

It also has a wider radius of attraction (as far as 20 miles, vs. about five to 10 miles for a conventional power center). The tenant mix includes specialty-store space (as much as 25 percent) and at least three or more big-box anchors. An element of leisure, whether it be a food court, a public plaza or a cineplex, is a vital component of the power town. An upscale trade area and highway visibility are also essential.

The timing may be right for this hybrid format. The cheap boxy approach of the power center has kept the big chains happy with low overhead, convenient access, plenty of parking and high visibility for their stores. And low-grade design hasn't hurt sales for the likes of Wal-Mart, Kohl's or Costco. But their strategy of growth by expansion is now approaching limits. And the lackluster performance of discounters in the closing months of 2002 makes the quest for new sources of growth more urgent: New customers, new marketing and new real estate strategies are in order.

For specialty chains, which have been looking for new avenues for growth as mall construction has slowed, power towns also present a new option. In the past few years, Ann Taylor, Limited and Talbots have piled into lifestyle and town center projects, where amenities and lush landscaping keep shoppers lingering for hours. According to ICSC data, lifestyle center shoppers spend an average of $2.40 more per visit than they do at traditional malls.

Plug In To Power Towns
Power Center Power Town Lifestyle Center
Square Footage 250,000-600,000 600,000-1 million 150,000-500,000
Concept Category-dominant anchors, few small tenants Category-dominant anchors, several specialty tenants, dining and entertainment in an outdoor setting Upscale specialty stores, dining and entertainment in an outdoor setting
Acreage 25-80 acres 80-100+ acres 10-40 acres
Anchor Ratio 75-90% 65-90% 0-50%
Anchors Three or more big-box anchors including category killers, home improvement chains, discount department stores, warehouse clubs, and off-price retailers Three or more big-box anchors, a multiplex cinema, large-format book store, food court or other leisure component Not usually anchored but may include large-format book stores, multiplex cinemas, small department stores and other big boxes
Primary Trade Area 5-10 miles 5-15 miles 5-8 miles
Notable Examples Palofax Square, Pensacola, Fla.; Point Plaza, Niles, Ill.; Chandler Pavilions, Chandler, Ariz. Desert Ridge, Scottsdale, Ariz.; Burbank Empire Center, Burbank, Calif.; Avon Common, Avon, Ohio Aspen Grove, Littleton, Colo.; The Avenue at East Cobb, Atlanta; The Arboretum at Great Hills, Austin, Texas

The power town concept could bring in these tenants and others. For example, Galyan's currently shies away from power locations because the big-box sports retailer doesn't like the milieu. “If it is basically a collection of big boxes around a parking lot, then it has too much of a discounter's feel and it's not right,” says David Zoba, the chain's executive vice president and counsel. “There's something about the architecture and human scale of lifestyle centers that make them better locations for a lifestyle and leisure tenant like Galyan's,” he continues. “We spend a little more money to make our store a pleasing building and we like to be surrounded by a whole environment where a customer recognizes the difference.”

POWER CENTER DNA

The atmosphere at Desert Ridge, a power town near Phoenix, is anything but low-rent. The builder, Phoenix-based Vestar Development Co., had been adding extra gingerbread to its power centers for several years in the belief that better curb appeal always pays. But Vestar took the idea to the next level at Desert Ridge, an elaborate upscale power center on a 110-acre parcel near the intersection of two major highways in Scottsdale, where Vestar is based. This project could very well serve as the prototype for the power town concept.

With help from MCG Architecture, Vestar combined aspects of its lifestyle, community and power center properties in a 1.2 million-square-foot shopping area.

“When power centers were first developed, they were very sterile, in-your-face functional situations, with four walls, a parking lot and maybe a tree or two,” says David Larcher, Vestar executive vice president. “But now they're evolving.”

To be sure. Driving up the palm-lined cobblestone boulevard into Desert Ridge, it's hard to recognize the power center DNA of the project. But the site features 800,000 square feet of big-box space with as formidable a lineup as any power center could hope to ink (including Kohl's, Target, Old Navy, Marshall's and Albertsons). But planted amid these big boxes is a 400,000-square-foot lifestyle component called The District, which is anchored by AMC Theaters, Barnes & Noble, Tower Records and Jillian's and includes Gen-Y specialty tenants Hot Topic, Limited Too and Journeys.

After parking their cars, visitors can hop on the center's alternative fuel-powered shuttle or stroll down one of the covered walkways that connect Desert Ridge's various outparcels, says Greg Lyon, principal at MCG Architecture.

The center features a sound system that plays music throughout the parking lot, walkways and common areas. Shutters and canopies, shed roofs and skylights create a village feel, while five interactive fountains form an integral part of Desert Ridge's hardscape.

To make the large project more convenient for shoppers, tenants are grouped by the products they sell. For example, Jo-Ann Etc., Ross Dress For Less and Marshall's are co-tenants in the softgoods district, while PETsMART, OfficeMax and Ultimate Electronics rub elbows in the hardgoods district.

WIDER TRADING AREA

The payoff is greater shopping volume from a wider circle of consumers. “Your typical power center draws consumers from a four- to seven-mile radius,” Larcher says. “A project with the tenant mix and unique character of Desert Ridge easily draws from 15 miles away. When you broaden the trade area to that degree, that translates into additional sales.” The trade area includes some 219,000 upscale consumers and, since Desert Ridge opened in late 2001, it has attracted more than 16 million visitors, Larcher says.

And, Larcher maintains, customers are showing a preference for power towns. They still seek the bargains and selection that drew them away from malls and department stores to the big-box retailers. But they like some fun with their shopping. “We have customers who may drive past two Targets to get to the Desert Ridge Target,” Larcher says. “A mother knows that the kids will have something they want to do here.” Indeed, there's a rock-climbing wall in the center court, a 20-foot-by-20-foot outdoor video screen, an amphitheater and a children's play area, plus 13 full-service restaurants.

The amenities don't come for free. A power town costs more to build and charges higher rents than a power center. “The rents are as much as 20 percent higher than at other open-air centers,” says Vestar's Larcher. “Our tenants can afford to pay higher rents because the wider draw of the project and limited competition in the trade area boosts their sales,” he says.

Construction costs may be particularly high for tenants in the small shops. Architects estimate that it could cost a specialty retailer as much as $100 per square foot to build in a town center type setting — vs. the $35 to $45 per square foot that a big boxer such as Lowe's might pay.

“Building a center like this involves a 25 to 30 percent premium in construction costs over a typical power center,” Larcher says. To build Desert Ridge, Vestar pulled together $180 million in financing. “But it pays off because we're able to attract more national specialty tenants that pay significantly higher rents,” he says. “In Desert Ridge's specialty areas we're achieving rents equaling that of a regional mall,” which are as high as $50 per square foot, according to Grubb & Ellis.

And in a typical power town, there are more specialty tenants paying the higher number. Big-box anchors take up more than 90 percent of the space at a power center. But at Desert Ridge, the mix is closer to a 75/25 ratio — with inline stores such as Limited Too and Sunglass Hut shouldering higher occupancy costs.

INDUSTRIAL AESTHETIC

Another recently opened power town is in Burbank, Calif., just over the hills from Hollywood. Burbank Empire Center was designed by Long Beach, Calif.-based Perkowitz + Ruth Architects for Los Angeles-based Zelman Development Cos. The 900,000-square-foot, $45 million center is located on the site of a former Lockheed aircraft plant and is anchored by Target, Lowe's, Best Buy, Linens N Things and Michael's.

Embracing the industrial aesthetic of the 1920s factory that the center replaces, Perkowitz + Ruth invoked retro elements and kept construction costs low at the same time. The center's pylon signs, visible from adjacent roadways, are topped with 10-foot- to 12-foot-wide abstract forms evocative of airplanes. Los Angeles artist Peter Shire was commissioned to create site-specific pieces throughout the center that reference the aerospace industry. Shop signs hang from giant steel armatures that evoke assembly line components and buildings are clad in a combination of industrial materials, including corrugated metal and painted concrete block.

To avoid the drabness of an actual factory, designers at Perkowitz + Ruth chose bright colors for the project. Extra-wide pedestrian arcades along the big-box storefronts allow shoppers to congregate without standing in a parking lot, which is festooned with signage shaped like wind socks. Even the sidewalks surprise: Shoppers walk across alternating sections of pavement and spongy foam rubber found in playgrounds.

But a cute theme and a few architectural add-ons do not a power town make. Burbank Empire Center needed a leisure attraction to keep shoppers hanging around. “A theater usually provides that essential entertainment anchor or hub for the gathering place,” says Brian Wolfe, a principal at Perkowitz + Ruth. “But at Burbank, an explicit restraint was imposed by the city, which said: ‘No movie theater.’”

So, the development team made restaurants and a pedestrian plaza the entertainment. Ignoring the power center formula of placing restaurants on freestanding outparcels in the parking lot, Zelman grouped tenants such as Olive Garden, Outback Steakhouse and Starbucks around a plaza off the center's main avenue.

“The restaurants weren't that happy about it at first,” Wolfe says. “But they've ultimately seen the value. It's a longer walk for parking but we've positioned their outside entries around the perimeter facing the parking. Their patio seating is oriented toward the public plaza.”

The plaza component creates the destination draw the center needed, a public gathering spot linked back to the main power center portion of the project. And consumers are responding. Wolfe says the plaza is packed on weekend nights and draws strong lunch and after-school crowds.

As with their town center cousins, the power towns put a great deal of effort into creating spaces for consumers to gather — as they might have on a main street in towns of yore.

That is clearly the idea behind Avon Commons, an 800,000-square-foot project outside Cleveland developed by First Interstate Properties. Anchored by Target, Kohl's, Old Navy, Linens N Things and Marshall's, the $65 million project features a restaurant park similar to the one at Burbank Empire Center, plus an entertainment gazebo and amphitheater and a landscaped walking path.

Avon has achieved an integrated look that would be impossible in a conventional power center. To ensure the integrity of Avon Commons' upscale design, Cleveland-based architects Dorsky Hodgson + Partners created a set of architectural details for the big-box anchors to incorporate into their prototypes so that they would fit with the overall design of the center. The guidelines are unusual for big boxers, which are used to wrangling with municipal design requirements, but not those of developers. Mitchell Schneider, president of First Interstate says the company acted as the “clearinghouse” between the tenants and the city of Avon's architecture review board.

But some big-box tenants require convincing, mainly because fitting into a power town means making adjustments to their prototypes. “Most of the national retailers would prefer to just build the same building over and over again,” says Wolfe. “We did have a bit of a fight with some of the tenants in Burbank over adjusting their prototypes. The developer had to go to bat and was able to convince them it was the right thing to do. And in the end, there was such a barrier to entry at this location that the retailers did things they might not have been willing to do.”

Wolfe says Target is one big box that is willing to rework its prototype to fit into power towns. “Target we found to be pretty flexible with architectural style. As long as you meet their criteria for lot, parking, building configuration, footprint and signage, they'll work with you on architecture, amenities, hardscape and landscape.”

While some retailers may be reluctant to embrace power towns, civic leaders are warming to the new concept. The power town lets the community accept a big-box development (and the resulting revenue) on its own terms. “City planners want more tax revenue, but they also want places for their communities,” Wolfe says. “They're a big driving force to implement these amenities.”

Without the power town design, in fact, Avon Commons could not have been built. Lorain County, where Avon Commons is located, had imposed a 30 percent green space requirement on new commercial development.

The county had a population of about 287,000 people in 2001 with a median household income of $45,000 in 2000, according to the Census Bureau. The unemployment rate was 6 percent in October; on par with national figures.

“When we got to Avon, our project was very controversial because the community was just growing and the Not In My Back Yard syndrome was strong,” Schneider says. “We really needed to listen to people in a way that we hadn't done in the past, and to balance that with what was economically feasible.”

In the end the costs were higher, but not exorbitant. “We built an 800,000-square-foot center, and I don't think we spent more than $4 per square foot on an overall basis to incorporate these changes than we would have spent if we'd simply ignored these aesthetic and pedestrian-oriented issues,” says Schneider.

First Interstate spent $40 million to construct Avon Commons (several big-box tenants spent another $25 million to put up their own buildings), and so opting for a power town design approximately equated to a 10 percent premium, far less than the added expense that Vestar took on at Desert Ridge.

“Even if you can only get an extra 50 cents per square foot in rent,” Schneider adds, “that pays for the extra $4 or $5 you spent in the initial capital expenditure. Our specialty space rents range from $18 per square foot to $28 per square foot, depending on the size of the space and the amount of the landlord's contribution to the buildout of the space.” Schneider says that Avon Commons' rents best market averages slightly.

Wall Street and current interest rates are buoying power town development, Wolfe says. “Some of the developers I've been working with were initially going to flip their projects. But money has gotten so cheap and other investments are producing such small returns that they're now calling me and saying, ‘We're going to hold these projects. I want to reel more money into the amenities.’”

The formula won't work just anywhere. It is succeeding at Desert Ridge. And Avon Commons and Burbank Empire Center are both enjoying rising rents and traffic counts, their owners say. But Larcher notes that a magic mix of location, market and tenants is essential.

Another important component is a concentration of well-off families. Desert Ridge is smack in the middle of a booming residential area with average household incomes in excess of $100,000 per year, and a lack of competing retailers in the immediate trade area. Avon Commons' five-mile trade includes 83,000 people with an average household income of $67,000. Wealthy bedroom communities such as these will provide proper nourishment for future power towns. But power towns also are viable options for urban infill properties.

The power town trend is only just gaining momentum. But if big boxers keep stalking the up-market consumer, and if architects and city planners keep pushing the power town agenda, the term could become part of your retail real estate vernacular in no time.

Is your company developing, managing or leasing space in a power town? Do you disagree with our assessment of the power town phenomenon? Send us a letter at 249 West 17th Street, New York, N.Y. 10011 or an e-mail to bkarlin@primediabusiness.com and share your thoughts.