For years the retail pie has been getting divvied up into smaller slivers. It used to be that there were only two big slices: regional malls and strip centers. But then came outlet malls. Power centers followed. And most recently, lifestyle and town centers have been the hot properties. This has produced conundrums for owners of major regional malls. They've ceded entire retail categories — pet supplies and furniture, for example — to other formats. And it has become exceedingly difficult to erect a plain vanilla shell anywhere in the U.S.
So the big developers, such as Simon Property Group and General Growth Properties, have come up with a new way to spice up their offerings. They're trying to build the best of all worlds, creating massive hybrid centers, or “power towns,” as one-stop destinations. Several current projects — some completed, some under development — include spruced-up regional malls, lifestyle and power centers all on one master-planned site. A hybrid center fits somewhere between lifestyle centers and even more ambitious mixed-use properties.
“The traditional model of the shopping center as an interior-focused, hermetically sealed box is no longer valid,” says Ro Shroff, principal at Callison, which designed General Growth's 2-million-square-foot Jordan Creek hybrid project in West Des Moines, Iowa.
Stan Eichelbaum, president of research firm Marketing Developments Inc. amplifies: “We are watching the mall get reinvented to regain lost customers. For many years, a customer with a husband and two kids had to pick whether she wanted to go to the mall or to Barnes & Noble or to Wal-Mart, and the mall was losing that customer.”
After a few years of the development pipeline being dominated by smaller players putting up lifestyle centers (which tend to be only 500,000 square feet or less), the emergence of the hybrid format is enabling the largest players to once again set the tone for the industry. According to Friedman, Billings, Ramsey REIT analyst Paul Morgan, 16 of the 37 major mall projects opening in 2004 and 2005 are hybrid centers — the most of any category.
But it's not just about controlling the developmental pipeline. The hybrid lets the mall regain categories it lost. “Over the years, the mall shed 13 retail categories to big boxes, including pet supply, furniture, grocery, books, theaters and proper restaurants. Mall-goers were pretty much down to gimmickry and fashion,” Eichelbaum says. By integrating big box and lifestyle, he believes the new mall hybrids unify the shopping experience and helps undo earlier mistakes, like the out-parceling of restaurants, which “all but destroyed the mall restaurant category,” and ignoring big-box discount, which hurt the mall's shopper base.
The rise of hybrid centers also reflects the diminishing importance of department stores in the mall retail mix. It is no coincidence that developers are branching out just as the department store sector is going through a shakeout. The merger of Kmart and Sears was the first step. The rumored Federated and May merger would be another blow. For Lou Taylor, REIT analyst at Deutsche Bank, hybrid centers typify “an evolution in mall retail” as properties morph into bigger open-air regional centers. “Lifestyle tenants want the convenience of having their customers drive up to the door and take out a lamp and put it right in the trunk and go,” says Taylor. “And developers of regional centers are finding they need to broaden their mix to trade more upper-end merchandise and to include more high-drawing entertainment components, like restaurants and theaters.”
Hybrids open the way for tenants that may not need or like paying for the indoor mall experience. Lower CAM — common area and maintenance — charges in outdoor centers attracted retail tenants that normally would not be regional mall candidates, such as restaurants, for example. CAM costs are higher at enclosed malls because tenants have to pay for the enclosure, which includes HVAC and cleaning costs. The lower tenancy costs are used as an argument when mall managers make the case to bring in tenants, like restaurants, that don't necessarily have high sales volume, but help drive traffic and keep people at a property longer.
The emergence of these new hybrid centers was stoked by the incredible popularity of the lifestyle center concept. Developers realized that goodcreates an atmosphere where shoppers want to visit more often (and therefore spend more dollars). That has worked well for upscale retailers like Williams-Sonoma and Pier 1, who now prefer to locate in these sort of projects and have begun to shun regional malls. According to ICSC figures, consumers spend $84 per hour at lifestyle centers, far ahead of the $57.70 per hour that regional malls get. But the visits tend to be shorter. Hybrids hope to counteract that trend. They almost always include parks, water features, kiddy playgrounds and attractive landscaping so customers can spend hours without being bored or dragging around discontented children.
Simon Property Group, the retail REIT credited as the first developer to burst open the enclosed mall by adding a Main Street component to its Mall of Georgia in 1999, continues to perfect its mix of retail formats. In March of 2005, Simon, along with partner Atlanta-based developer Ben Carter Properties, will launch St. John's Town Center, an open-air shopping center in Jacksonville, Fla., that, while lacking a mall component, includes a community center, a park and a lake. In a later phase, Simon will add residences and a hotel. “At St. John's, Simon is establishing a periphery of discounters and big-box retailers and including an open-air, main-street lineup of specialty stores integrated into the flow of the property,” says Morgan.
The REIT is also configuring hybrid formats at its Coconut Pointe project in Ft. Myers, Fla., and its just-announced redevelopment at Tyrone Square, a super-regional mall in St. Petersburg, Fla., where Simon is set to intersperse lifestyle components among its anchors. The aim is to achieve a streetscape appearance and thereby, it seems, reintroduce a busier, more urban feel to the suburban milieu.
“People are looking to do more things in one place, that is, to shop, to eat dinner, to go to a movie,” says Simon spokesman Les Morris. “To the extent Simon and Ben Carter can accommodate those disparate needs in one area, we think we've got a winner.”
Simon's building pattern underscores another trend with hybrids: Most are popping up in secondary or tertiary markets where the large tracts necessary to build are more readily available. In part, developers are seeing them as destinations where people may come from farther afield to spend time. The shoppers at these projects aren't just coming from the surrounding neighborhood. In some cases they're coming from the next state.
General Growth's Jordan Creek embodies the broad scope of the new hybrid. It cost $200 million, provides 200 acres of retail, dining, entertainment and recreation, and single-handedly makes Iowa more competitive against competing destinations. General Growth CEO John Bucksbaum projects that in 2005 the center will recapture more than $82 million from Iowans who previously trekked to Minneapolis,and Kansas City to shop. Three-quarters of all Creek retailers are new to the market or state, giving the center an appealing air of exclusivity. “In our first holiday season, we proved that Jordan Creek is a statewide draw,” says Eric Almquist, general manager. “We found through ZIP code surveys that an hour's drive is not uncommon for our primary customer base and for peripheral trade; we're getting people from the four corners of Iowa.”
Jordan Creek is a three-part project that incorporates a two-level “shopping district” that houses such retailers as Williams-Sonoma and Ann Taylor as well as a Century Theatres movie complex with 20 screens, the largest in Iowa; a “village district” populated by specialty and big-box retailers, including Iowa's first Costco; and a “lake district” featuring a 3.5-acre lake surrounded by bike trails and a boardwalk featuring waterfront dining, along with an amphitheater and hotel.
Design is critical in marrying the elements of a hybrid, both at the building level and in the landscaping. For Shroff, the lake at Jordan Creek was crucial to achieving the “pastoral resort-like ambience” Callison was after. “In middle America, a water setting creates better real estate. We thought, what if there was a body of water, knowing this would probably die a quick death because of the presumed associated costs. We argued that a central body of water would become a public amenity and that by lining it up with restaurants and boardwalks and dining patios and biking trails and locations for farmers markets you would create a sense of place, a town center per se; and lo and behold, everyone loved the idea!” The result, Shroff says, “is a shopping center that almost bursts out and engages the lake.”
Also on the plus side, developers claim that building hybrids costs them no more than developing a regional mall. “When you compare them on a square-foot basis, our costs at Jordan Creek are very similar to our enclosed malls,” says John Bergstrom, senior vice president of development at General Growth. “Yes, there are extra costs when dealing with streetscape, but that is minimal as a percent of total cost.”
The growing success of these projects is leading other groups to get into the act. Westfield Group does not play in the ground-up game and instead focuses on redevelopment. But it too is looking to the hybrid format to rejuvenate some of its malls through what it has dubbed its “Hy-Style” program.
“Right now, we've got more than 10 projects going on and I'd say that all of them or nearly all have some kind of Hy-Style component,” says a spokesperson for Westfield.
The company's program has it incorporating streetscape and lifestyle center tenants, such as furniture retailers and bookstores, as well as entertainment and al fresco dining. On the other end, it is pulling in big-box retailers and even has worked with Wal-Mart Stores Inc.
“We had the first Wal-Mart specifically designed to incorporate itself into a regional mall setting,” according to the Westfield spokesperson.
The Richard E. Jacobs Group, which sold most of its regional mall properties for estate-planning reasons in 2001, has reemerged as a developer of hybrids. The 1.4-million-square-foot Triangle Town Center in Raleigh, N.C., opened as a regional mall in 2002 with four anchors and 125 special shops. The second phase — with outdoor streets of shops and restaurants — opened in 2004. Last year the company also broke ground on the 1.6-million-square-foot Gulf Coast Town Center in Ft. Myers, Fla., and it is preparing to build the 1.6-million-square-foot Cypress Creek Town Center in Tampa.
Hybrids are not the perfect answer for every developer. Their size limits how many can be built, and narrows the field of potential builders. But it is clear that these new projects will dominate the pipeline for at least the next few years as regional mall owners fight to retain their market share.
HYBRID CENTERS DEBUTING IN 2004 AND 2005
|Project||City||Developer||Size (sq. ft.)|
|2004||Clay Terrace||Indianapolis||Simon Property Group||570,000|
|Deerfield Towne Center||Cincinnati||Jeffrey R. Anderson Real Estate||415,472|
|The Avenue Veiera||Melbourne, Fla.||Cousins Properties||415,000|
|Jordan Creek Town Center||Des Moines, Iowa||General Growth Properties||1,500,000|
|2005||Coconut Pointe Town Center||Ft. Myers, Fla.||Simon Property Group||1,800,000|
|Eastern Shore Centre||Mobile, Ala.||M.G. Herring Group||462,000|
|Firewheel Town Center||Simon Property Group||785,000|
|Gulf Coast Town Center||Ft. Myers, Fla.||Richard E. Jacobs Group||1,500,000|
|Shops at Centerra||Denver||Poag & McEwen||700,000|
|Shops at Palisade Park||Denver||Developers Diversified Realty||1,500,000|
|Simi Valley Town Center||Los Angeles||Forest City Enterprises||800,000|
|St. John's Town Center||Jacksonville, Fla.||Ben Carter/Simon Property Group||1,500,000|
|The Avenue Carriage Crossing||Memphis||Cousins Properties||1,100,000|
|The Shops at Gateway Crossings||Toledo, Ohio||General Growth Properties||500,000|
|The Summit Front Range||Ft. Collins,Colo.||Bayer Properties||450,000|
|xSource: Friedman Billings Ramsey|