The Mid-Atlantic region of Maryland, Virginia and Washington, D.C., continued to attract new retailthroughout 1999. By most accounts, the year 2000 will bring more of the same, but the pace of development may slow, given shrinking supplies of new space.
"This retail cycle began about nine years ago," says Tom Maddux, a principal with KLNB Inc., a Baltimore-based broker. "In a mature market like Baltimore, it can take that long to create viable retail development sites. Most of what we're seeing now, in the later stages of the cycle, is newon previously developed properties, including existing retail and industrial properties."
Development around the I-695 Beltway in the Washington metropolitan area has also grown challenging, notes David Ward, a broker with the Chevy Chase, Md., office of H&R Retail.
"New properties are few and far between," he says. "Right now, to accommodate retailers' needs, you have to look for tear-down opportunities and acquisitions from bankrupt retailers. If you're looking for a major big-box development opportunity, you have to go farther and farther away from the major markets to find large parcels."
Then again, within the boundaries of the Washington-Baltimore mega-market, which is home to 7.6 million people, close-in parcels are not always necessary.
This November, for example, Arlington, Va.-based The Mills Corp. will open Arundel Mills on a 400-acre parcel located more or less equidistant from Washington, Annapolis and Baltimore. The $250 million project will contain 16 anchors and 200 specialty stores.
Closer in, developers have begun to redevelop aging properties and are finding new ways to use unconventional sites. The Mid-Atlantic has proven so attractive to retailers that developers are overcoming the shortage of new, close-in space by thinking more imaginatively.
Given the region's pull with retailers, it may be that population and job growth are better indicators of the potential for future retail development than the current lack of new space. Retail development is not only spurred by such growth, it also contributes to it. Arundel Mills, for example, will employ an estimated 3,000 people and create another 3,000 jobs in the regional economy.
Demographics remain steady Steady if not strong population growth characterizes the entire region, which is already densely populated. A December 1999 report by the U.S. Census Bureau puts Maryland's population at 5.2 million, up 0.8% since 1998 and slightly below the national population growth rate of 0.9%. Virginia's population grew faster than the national average, increasing by 1.2% to 6.9 million between 1998 and 1999.
Washington, which has lost population at a rate of nearly 2% a year for the past decade, saw its losses subside last year. The Census Bureau report estimates the Capital's population at 519,000 in 1999, a decline of just 2,400, or 0.5%.
Robust job growth in most of the region explains the increasing population and also suggests continuing opportunities for shopping center developers able to find space.
In Maryland, employment in third quarter 1999 stood at 2.75 million workers. Up substantially from the previous quarter, that total is the highest employment number in five years, according to the Bureau of Labor Statistics. The Downtown Partnership, a Baltimore city business alliance, says that jobs in the city itself grew by 3% during last year.
Virginia's job count grew by 90,900 jobs, or 2.8%, between 1998 and 1999, according to the Fall 1999 issue of Mid-Atlantic Economic Quarterly, published by RESI, an economic research institute based at Towson University in Towson, Md.
Technology brings growth The RESI report contends that the job picture has also turned around in the District of Columbia. It cites a net gain of 400 jobs for 1999, despite a decrease of 1,000 federal government jobs in the same period. "Though the rate of job augmentation may not seem impressive upon first glance," says the report, "the small increase is a far cry from the 2-3% annual job loss that the city was registering routinely earlier in the decade."
Much of the job growth in the region has come from advanced technology industries offering higher-than-average salaries. In Maryland, youthful communications and biotechnology industries are fueling commercial construction from Baltimore south to Washington. In Virginia, the Internet and high technology industries, led by Reston, Va.-based AOL, are flourishing and growing.
Plenty of people with ample disposable income make for good retail markets and shopping center development opportunities. The Washington metropolitan statistical area, for example, ranks fifth in the nation in overall retail sales. In 1998, the region's retailers sold $46.9 million worth of merchandise to a market with a median household income of $59,648. Almost 60% of the region's households have incomes of $150,000 or more. As a result, inventive developers are finding ways to bring new stores to willing, well-heeled customers.
Creative developments in Baltimore Baltimore's Inner Harbor became a magnet for redevelopment projects in the past year. A major new Inner Harbor East convention hotel is well into construction on a redeveloped industrial site just east of the Power Plant, another redevelopment completed by The Cordish Co. of Baltimore two years ago.
One block north of the Power Plant, Cordish plans to begin redeveloping the city's failed Fishmarket entertainment center later this year. "We're redoing it as Power Plant Live," says Reed S. Cordish, the company's vice president of development. "We have also received approvals for a Power Plant Phase II project adjacent to the east side of the original Power Plant. This will be a 200,000 sq. ft. mixed-use project with restaurants, retail and office space."
These projects will draw on and enhance the Inner Harbor's position as the largest tourist attraction on the East Coast and one of the largest in the country. "The Inner Harbor is a first-tier attraction," Cordish says. "It has two major league stadiums, an expanded convention center, the Maryland Science Center, the National Aquarium, Harbor Place and other attractions."
In other areas of the city, redevelopment is flourishing as well. "Howard Street on the west side of the city is being redeveloped into an arts district with housing, retail and street-level cafes," Cordish says. In midtown, near Johns Hopkins University, a 40,000 sq. ft. Main Street project is already partially open and partially under construction. "It can be more difficult to work in a city, but if you're creative, you can find real opportunities."
Once such example is Bethesda Row, a phased project that encompasses five contiguous blocks of Main Street retail in the heart of the Bethesda, Md., central business district. Bethesda Row is being developed by Rockville, Md.-based Federal Realty Investment Trust. It consists of nine buildings with 221,000 sq. ft. of retail and 109,000 sq. ft. of office space. Phase IV is a 140,000 sq. ft. building that will contain 105,000 sq. ft. of street-level retail and restaurant space, as well as a 35,000 sq. ft. Landmark art cinema. The cinema will be below street level.
Moving forward in the suburbs Developers are also finding ways to press ahead in the suburbs. In crowded Baltimore County, Home Depot is building a store on property vacated by a defense contractor. "Just around the corner from that Home Depot, a new Sam's Warehouse and a new Lowe's are going up on property owned by an area quarry," says KLNB's Maddux.
Neither site offers easy visibility from a major thoroughfare. But retailers seem to believe visibility doesn't matter as much as it once did. "Big boxes have changed the rules of retailing," Maddux says. "These are destination stores. The Home Depot location, for example, is close to Interstate 83 because Home Depot worries more about transportation access."
Target has found a location on York Road, the main retail thoroughfare in northern Baltimore County, where few developers might have thought to look. "Target bought a large maintenance site from Baltimore County," says Maddux. "They got a traditional location, and Baltimore County made money."
Redevelopment of existing properties has become a major focus in the Baltimore suburbs. "If you include centers of all sizes, there are probably around 40 centers being redeveloped in and around Baltimore," Maddux says. "To the south, the Glen Burnie Mall has been redeveloped. To the west, the Westview Mall is undergoing a second redevelopment and replacing a closed Caldor with a Home Depot.
"In Ellicott City," he continues, "Home Depot has taken another old Caldor in the Chatham Mall. In Owings Mills, Garrison Forest Plaza is being redeveloped with a new Safeway prototype. At the intersection of Interstate 83 and Shawan Road, the Hunt Valley Mall is being demalled and becoming a power center with a Wal-Mart, Dick's Sporting Goods and several other big boxes."
Neighborhood centers are part of the redevelopment movement in the Baltimore metro market. Forty new supermarkets, including nine redeveloped locations, have opened or will open between 1998 and 2000, according to a KLNB report on the region's grocery store business.
A new attitude in D.C. In Washington, creative government is encouraging retail redevelopment. Inaugurated about 18 months ago, Mayor Anthony Williams has set out to revitalize the District's fading retail offerings. Last May, for example, he spent a week in business meetings with retailers and developers at the ICSC convention in Las Vegas.
Mayor Williams is supporting those efforts by providing developers with strong incentives. The D.C.-based Western Development Corp., for example, recently broke ground on a $195 million redevelopment called Gallery Place, on Seventh Street, three blocks from a new convention center. The District will help pay for Gallery Place by issuing $64 million in tax-increment financing bonds.
Gallery Place will house 250,000 sq. ft. of retail, including an AMC cineplex, Border's Books & Music, Jillian's restaurant and specialty retail. In addition, the development will contain 173 apartments.
In its mix of retail and residential space, Gallery Place illustrates the new administration's revitalization strategy. "We want people to move back downtown, and retail and residential development are both part of that effort," says Elchino Martin, chiefof staff for the District's Office of Economic Planning and Development.
According to Martin, the effort to bring residents and retailers into the District extends beyond downtown to outlying neighborhoods. "We're discussing neighborhood sites with national discount retailers and with area grocery stores," says Martin. "In support of this strategy, Charlene Jervis, who chairs our Economic Development Committee, has proposed legislation giving tax benefits to grocery stores and other retailers."
Timing was right The District couldn't have timed its neighborhood redevelopment efforts better. Development opportunities in the surrounding metropolitan area have grown tight, according to vacancy and rental rate figures collected by Delta Associates in its annual survey of 65 shopping centers, released in January 2000.
The Delta study shows, for example, that vacancy rates in grocery-anchored shopping centers fell to 2.5% in 1999 across D.C.'s Maryland suburbs in Montgomery and Prince George's counties. In the suburbs of northern Virginia, vacancy rates in neighborhood centers have plummeted over the past five years from 10.8% to 2.9%.
Rents have risen, too. In Montgomery County, average 1999 rents for in-line neighborhood center space have risen to $24.29 per sq. ft. from $22.92 in 1996. In Loudoun County in northern Virginia, average rents have increased to $21.11 per sq. ft. from $16.83 in 1996.
At the same time, slow-growth advocates are raising issues that have slowed projects. At the end of 1999, a $1 billion office and retail project adjacent to a mass transit station in Prince George's County ran into trouble. Environmental groups raised conservation concerns, while a city council decision to oppose a Beltway interchange complicated the job of providing access to the site. Observers seem to believe the project will eventually move forward but say it will take time to work out the issues.
The 'burbs and beyond In other areas of suburban Washington, redeveloping older properties has caught on. Fairfax City in northern Virginia began a $170 million downtown redevelopment project last December. The project will replace a 1950 city center with a two-story Harris Teeter grocery store, a renovated T.J. Maxx, and retail shops and restaurants. City officials also hope to attract a cineplex and several national retailers in coming years.
In Arlington County, Va., Federal Realty Investment Trust is taking advantage of job and population growth with Pentagon Row, a mixed-use project being developed in conjunction with Atlanta-based Post Properties. The two companies have collaborated for more than a year on residential developments that incorporate Main Street retail.
Pentagon Row, which is slated to open in 2001, is located on 18.5 acres across from the Potomac River. It will target professionals and empty-nesters. Features include a vibrant central square and fountain, an ice skating rink, lush landscaping and outdoor cafe-style seating. The 500 residential properties will be integrated with 300,000 sq. ft. of specialty and service retail.
Boxes aplenty in secondary markets Outside of the D.C.-Baltimore mega-market, secondary markets such as Richmond and Hampton Roads offer a reasonable supply of new space. In Richmond, available space, a stable economy and high employment have begun to attract big-box power center developments, according to John Jay Schwartz, director of retail services for the Richmond, Va., office of Los Angeles-based CB Richard Ellis.
"Boxes, boxes, boxes," he says. "The metropolitan Richmond area is filling up in all quadrants and at all key intersections. Big-box users Wal-Mart, Lowe's, Home Depot, Target and Kohl's are leading the way."
Across the Richmond market, which Schwartz says encompasses 25 million sq. ft., vacancy rates in new space are at 6%. They're slightly higher for older space.
"The high-end for rents has moved from the high teens to the high twenties," he says. "For new big-box anchors of 25,000 sq. ft. and up, rents are getting into the low teens."
Schwartz ranks Stony Point Mall, a Taubman development in Richmond, and the Short Pump Town Center, being developed by Forest City/Pruitt Associates in western Henrico County, as the two largest retail developments now under way in the Richmond metropolitan area.
Coming attractions include Canal Walk, a stretch of ground along a canal separating the James River from the Richmond financial district, being developed by the Richmond Riverfront Development Corp.
Another project in the early stages of development is a 140-acre lifestyle center in western Chesterfield County. Simon Property Group, Trammel Crow and the landowners are working together on the project, according to Schwartz.
The Hampton Roads area along the Virginia coast is filled with development opportunities. "Hampton Roads has a population of 1.5 million and is the largest metropolitan statistical area in the country without a professional sports team," says Reed Cordish. "But that doesn't matter. Williamsburg, Virginia Beach, Norfolk and Hampton together attract 8 million visitors per year."
The Cordish Co. is developing a 100-acre site at Interstate 64 and Mercury Boulevard in Hampton Roads. "We're creating a traditional retail power center and an entertainment/lifestyle center on opposite sides of a lake," Cordish says. "It's a $50 million project called the Power Plant of Hampton Roads. It will be a high-quality, heavily themed project with a real sense of place. We want to create a regional destination for residents as well as tourists."
Just as the major markets require creative ideas to overcome space limitations, the Mid-Atlantic's undeveloped parcels in secondary markets are enjoying their own share of ingenious retail projects.