In many areas of Maryland, Virginia and Washington, D.C., the economic slowdown sweeping the rest of the nation hasn't hit home. “We're seeing signs of what we read in the papers. But many of the retailers we represent are pulling in very strong sales, and their appetite for expansion has not been limited,” says David Ward, president of Baltimore-based H & R Retail Inc. “We've heard more talk than we've seen response by the retailers.”

Economic decline had been on the tip of many tongues. But thanks to the Fed's latest round of interest rate cuts, the climate has changed to some extent. “With the interest rate decline, consumer confidence has gone up,” observes Ward.

While the economic slowdown provoked high-tech layoffs and dot.com flameouts across the United States, the Mid-Atlantic region exudes a steady confidence it will escape the malaise. Retail development is up, particularly in the Washington-Baltimore MSA and southeastern Virginia's Hampton Roads.

Promising demographics are one of the reasons. The Washington metro area, for example, has the highest per capita income of any major metro area in the nation. Maryland has added 50,000 jobs during the past year for an annual growth rate of 2.1% — the 12th best in America. It is also one of only 13 states that have per capita incomes of more than $30,000.

With so much disposable income and such a growing population base, it should come as no surprise that the Mid-Atlantic continues to expand. “It's the quality of the growth,” says Jim Wheeler, executive vice president for real estate with Vienna, Va.-based The Rappaport Cos. “The average retail job pays about $22,000 a year. The average service job pays about $40,000 a year. The average high-tech job pays about $60,000 a year. We're creating something like 30,000 high- tech jobs a year. If you translate that into spending power it's almost like 100,000 people at the retail level. This growth creates a huge ripple effect in the economy.”

Of course not everything in the region is rosy. Washington has seen the pull back of expansion plans by grocery chains Harris Teeter and A&P. Virginia's first month of the New Year was anything but happy — the state reported 4,187 corporate layoffs in January alone. Meanwhile, beginning in February, Montgomery Ward's demise triggered several store closings. Even so, other retailers will snap up many of these spaces.

A Capitol resurgence

Downtown Washington, D.C., is like a shopping center undergoing redevelopment, says Seamus Houston, director of marketing and communications for the 110-block Downtown D.C. Business Improvement District. More than $5.4 billion is currently being invested in new development in the area, which has a spending potential of more than $10.5 billion, according to Cambridge, Mass.-based Economic Research Associates Inc.

This development includes Gallery Place, a 465,000-sq.-ft. entertainment, retail, and housing complex atop a city transit station near the new convention center and MCI Center. The project, which will be anchored by a 21-screen AMC cinema, received $65 million in city funds.

The developer of the project is Gallery Place Associates, a consortium of locally based companies including Western Development Corp., the John Akridge Cos. and Williams Jackson Ewing. “Gallery Place is the first project that they're trying to put retail with TIF [Tax Increment Financing] dollars,” reports Len Harris, a D.C.-based vice president for Transwestern Retail Services.

Other major developments include the relocation of the Freedom Forum and its Newseum (an interactive museum of news) from Rosslyn to a site on Pennsylvania Avenue. The $100 million deal — the highest ever for a single piece of land in the District — will include a 300,000-sq.-ft. museum and office building along with 30,000 sq. ft. of ground floor retail space. The city is also looking forward to its first downtown department store in many years when Macy's completes negotiations for the former Woody's site near the MCI Center.

Much has changed since the days when retail vanished from downtown following the race riots of the late 1960s. The Clinton Administration removed many of the Federally imposed constraints on D.C. and Mayor Anthony A. Williams has moved to bring business back With nearly 3,000 units of housing set to come on line, this activity is also drawing more people back to the city.

“The new mayor has made dramatic strides and continues to make the city more responsive to the needs of business and the citizens,” says Houston. “It isn't any one little thing — it's a number of things. The city of Washington has been misunderstood, maligned, and not well-positioned because of factors that were outside the city's control, such as the fact our mayor was smoking crack.”

Metro retail booming

In areas around D.C. retail is also booming. Rockville, Md.-based Federal Realty Investment Trust is building an open-air lifestyle center just over the bridge in Arlington, Va. Located near the Pentagon City Mall and the Metro line, it will tap the retail potential of one of the region's most successful malls.

“More of it is lifestyle centers,” says Bill Miller, vice president for Transwestern's retail services group. “The bottom line is, mixed-use is where it's at,” says Miller. “Mixed-use means lifestyle retail. Reston Town Center is $5 a sq. ft., and more than a quarter of a mile away. In a half-million-sq.-ft. building that's a lot of money.”

Across the District in tony Bethesda, Md., The Home Depot is locating one of its Expo Design Centers in an old Hechinger's Department Store. When it opens later this year the store will occupy 92,000 sq. ft., while other retailers will take over an additional 35,000 sq. ft. of inline space.

“Washington is pretty much the market you have to be in if you're going to be a national retailer,” says Chris Phillips, vice president for retail services with Transwestern, who handles the leasing of inline space for the center.

“We don't tend to incubate retailers that leave here and expand outward. We tend to attract retailers that have established themselves in other marketplaces and then gravitate toward the Washington market.”

Slowed by lack of space

To the northeast in Baltimore, development has centered on Baltimore/Washington International Airport. Served by a low-cost airport, a multi-track rail line and an interstate highway system that links it to two growing cities, the area has been attractive for business and retail.

“Baltimore has a limited amount of development going on in some of the more outer suburbs,” says H & R Retail's Ward. “The retail activity is a lot of re-use of retail space. They're tearing down older shopping centers and putting up larger stores.”

Among the malls being redeveloped are New York-based Equitable Life Insurance Society's 20-year-old Hunt Valley Mall and locally based Pulaski LP's 13-year-old Golden Ring Mall on the east side of the city. Other redevelopment projects in the region are the Rappaport Cos.' 100,000-sq.-ft. Mt. Airy (Md.) Shopping Center, the 74,000-sq.-ft. University Center in Fairfax, Va., and Arlington, Va.-based Charles E. Smith Retail Services' 236,000-sq.-ft. Worldgate Center in Herndon, Va.

“One of the bigger pieces of retail news here is the opening of Arundel Mills, which is one of the Mills concept centers,” says Ward. “That opened on the southwest side of Baltimore. It's been doing extremely well as we understand. It has attracted a significant amount of peripheral retail development from tenants such as Wal-Mart, Costco, Circuit City and others.”

Two hotels are also planned to open next door to the mall, which expects to attract 17 million visitors annually.

The Riches of Virginia

“As far as Virginia is concerned there's a lot of activity in the Richmond trade area and of course the peninsula of Hampton Roads,” says Gerald Divaris, chairman and CEO of Virginia Beach-based Divaris Real Estate.

The knock on Hampton Roads in southeast Virginia was that incomes were low in this military-dominated region of 1.6 million people, which includes the cities of Norfolk, Virginia Beach, Newport News, Hampton, Suffolk and Chesapeake. High-end retailers had no reason to locate there. Today, business is getting the message that this just isn't so. “The demographics for Hampton Roads have been incorrectly stated,” Divaris asserts.

Why? The standard used by most demographers to measure income does not reflect both active and passive income. According to the Census Bureau, the average personal income for the Southside is just $48,204. However, the area's Total Personal Income, which includes passive income, is significantly more — $66,930, according to the Commerce Department's Bureau of Economic Analysis.

“Passive income includes things like pensions,” Divaris explains. “Pensions are very important in this area because you have so many military retiring at a young age, which means they are economically active. They can go back out into the market and get another job.”

The area has attracted white-collar employers such as American Funds, GEICO, Cigna and USAA. Along with these companies have also come a large number of high-tech firms that do business with the government and military.

Local developers say the area is finally getting the retail it deserves. The MacArthur Center in downtown Norfolk opened last year with 1 million sq. ft. that included Nordstrom, Williams-Sonoma, and other high-end retailers. Meanwhile, the Town Center of Virginia Beach — a Main Street, mixed-use city center — is entering its first phase, which includes a $92 million parking garage and tower with office and retail next to a 209-room Renaissance Hotel.

“Pensions are very important in this area because you have so many military retiring at a young age, which means they are economically active.”

A joint project of locally based Armada/Hoffler Holding Co., Divaris Real Estate Inc., and the city, Town Center incorporates an open-air, piazza-style city square with restaurants and specialty shops centered around a city park. It will also include 600 apartments and a movie theater.

Throughout the Mid-Atlantic region prospects are bright and business is booming to levels local developers haven't seen in years. In areas that have been long neglected, the promise is that the current wave of development will carry the region through any economic downturn.

Randy Southerland is an Atlanta-based writer.

Mid-Atlantic project listings

Washington, D.C.
Project Name, City, State Developer/Headquarters Center & Project Type Current GLA* Completion Date* Anchors
Cady's Alley
Washington, D.C.
EastBanc
Washington, D.C.
N • RD 150,000 sq. ft. Quarter 2, 2001 Baker Furniture, Waterworks
Ligne Roset
Maryland
Project Name, City, State Developer/Headquarters Center & Project Type Current GLA* Completion Date* Anchors
Frederick Towne Mall
Frederick
Trammell Crow Co.
Dallas
M • RD 602,000 sq. ft. Fall 2002 The Bon-Ton, Hoyt's Cinema
First Colony Center (Phase II)
Lexington Park
Trammell Crow Co.
Dallas
P • N 382,000 sq. ft.
+70,000 sq. ft.
Spring 2002 Target, Giant Food, Lowe's
Home Center, Staples
Oxon Hill Plaza
Oxon Hill
Combined Properties
Washington, D.C.
C • RD 143,000 sq. ft.
-16,000 sq. ft.
Jan. 2001 Shoppers Food
White Flint Plaza
Rockville
Combined Properties
Washington, D.C.
C • RD 221,000 sq. ft.
+14,000 sq. ft.
Jan. 2001 Shoppers Food
Falls Grove Village Center
Rockville
Lerner Enterprises
North Bethesda, Md.
C • N 150,000 sq. ft. Summer 2002 Safeway
Eldersburg Marketplace
Eldersburg
Black Oak Associates Inc.
Baltimore
P • N 330,000 sq. ft. Fall 2001 Kohl's, Home Depot
Westview Entertainment Center
Westminster
Westview Acquisitions
Baltimore
P • N 210,000 sq. ft. Spring 2002 R/C Theatres
Virginia
Project Name, City, State Developer/Headquarters Center & Project Type Current GLA* Completion Date* Anchors
Portsmouth Central
Portsmouth
Trammell Crow Co.
Dallas
P • RD 700,000 sq. ft. Fall 2002 Lowe's Home Center
The Creeks at Virginia Center
Richmond
Developers Realty
West Hartford, Conn.
P • N 260,000 sq. ft. April 2001 Barnes & Noble, Circuit City,
Bed, Bath & Beyond
Colonnade Court (at Dulles T. C.)
Dulles
Lerner Enterprises
North Bethesda, Md.
C • N 50,000 sq. ft. 2003 To be announced
Dulles Town Center
Dulles
Lerner Enterprises
North Bethesda, Md.
M • E 1,200,000 sq. ft.
+210,000 sq. ft.
Summer 2002 Hechts, JCPenney, Lord &
Taylor, Sears, Nordstrom
Center Type: S=Strip Center, N=Neighborhood Center, C=Community Center, M=Regional/Superregional Mall, P=Power Center, O=Outlet Center, L=Lifestyle Center, F=Fashion/Specialty Center, MU=Mixed-Use Development. Project Type: N=New Project, E=Expansion, RN=Renovation (updating look, refacing, common area or amenities upgrade), RD=Redevelopment (demalling or remerchandising). Completion Date*: Subject to change. Existing/Planned GLA (Expansion GLA): GLA=Gross Leasable Area.

Retailers moving out of malls?

Towson, Md. — Coinciding with the steep drop of construction starts for new malls nationally, a report from KLNB, Inc., concludes that more retailers are opening new stores in strip centers, free-standing facilities, outlet centers and big-box locations.

Key reasons for this shift include greater convenience for consumers, lower occupancy and operating costs in non-mall locations, the increased use of e-commerce vehicles for shopping, and dramatic lifestyle shifts among the buying public.

“This trend does not signal the death knell for traditional shopping malls,” says Patrick A.M. Miller, a Principal for KLNB, Inc. and the author of the study, “but, rather, is an indication of the importance retailers are placing on supporting real estate sites to supplement their existing programs. There is a frenzied and competitive race underway to capture key pad site and strip shopping center locations, in an effort to influence the buying habits of consumers,” he adds.

According to ICSC, more than 16,000 new construction starts occurred in the 1980s. However, malls have decreased in their growth in the past five years and retailers are increasingly adding strip shopping centers to their distribution formula.
Source: KLNB