Retailers ranging from Michaels and Old Navy to Wal-Mart and Home Depot continue to train their sights on the Midwest for aggressive expansion plans.

"The pace of the nationally recognized retailers has not slowed at all where their bricks-and-mortar expansion is concerned," says Dennis Gershenson, president and CEO of Ramco-Gershenson Properties Trust in Southfield, Mich.

The insatiable appetite of big boxes in particular is sparking new development that runs the gamut from freestanding stores and power centers to upscale lifestyle centers and even enclosed malls.

"It continues to amaze us. The activity is incredibly strong, and at this point we're seeing no slowdown in development activity," says Mark Perlstein, a partner at The Linder Co., Indianapolis. New entrants to the Indianapolis market include Starbucks, which plans to open a whopping 30 stores in the metro area.

From a supply and demand standpoint, this is one of the healthiest retail markets, notes Todd Caruso, managing director, retail services at CB Richard Ellis, Lincolnshire, Ill. "We're not anticipating there's going to be a lot of overbuilding. There's not as much spec space for lease as we have had in the past," Caruso says. Most of the shopping centers going up have a significant amount of preleasing before they break ground.

Development in Chicago actually slowed in 1999, which helped push the overall shopping center vacancy rate from 8.5% in 1998 to 7.8% at year-end.

"The retail market is doing very well right now. Sales for the Christmas season were the best in the past 10 years, and obviously shopping centers are benefiting from that," says Susan Ahlert, a vice president of retail leasing at PM Realty Group in Chicago. "All indications show that retail is going to continue to do very well."

Early 2000 sales figures bode well for a continued strong market, too. U.S. retail sales rose 1.1% in February to $265.7 billion, according to the U.S. Department of Commerce. "I think the balance of 2000 should remain strong. Same-store sales may not increase as dramatically as they did in 1999, but, instead, 4% to 5% increases are predicted," says Bill French, a vice president at Colliers Turley Martin Tucker in Indianapolis.

The Internet has impacted retailers, but e-commerce has not struck the negative blow many anticipated."As far as competitiveness with Internet-based companies like E-Toys and Amazon.com, traditional brands will do better because people feel more comfortable with the brand name," Ahlert says. For example, Amazon.com is one popular retail Web site, but the company has yet to make a profit, she notes.

In fact, many retailers are leveraging e-commerce to complement their own physical store locations. "What we're seeing is more and more of the traditional bricks-and-mortar retailers using that application by putting computer terminals in their stores," Gershenson says. If an item is out of stock at a store, the customer can use the in-store computer to order an item off the Internet or check the availability at other store locations, he says. Consumers also can log on to retail websites, such as www.sears.com, to research products before going to a store to make a purchase.

Growing markets Economic growth throughout the Midwest has helped boost retail activity. Columbus is one market that has experienced significant expansion in recent years. The Columbus MSA has grown to an excess of 1.5 million people, and new business creation is on the rise, says Michael J. Powers, vice president, mall leasing at Glimcher Realty Trust in Columbus. Total employment in Columbus increased 2.4% to 848,000 in 1999, and new housing starts jumped 20.6% to 13,014.

Corporations expanding in the Columbus market include Cardinal Health Systems, BankOne and MCI WorldCom. Those factors, together with a strong overall economy, have helped spark significant retail expansion. National chains ranging from the Cheesecake Factory to Lord & Taylor are among the newcomers to Columbus. Overall, 3 million sq. ft. of retail space was added to the Greater Columbus market in 1999. By 2001, the Columbus retail market is expected to grow to about 42 million sq. ft. - a 28% increase since 1996, according to the Columbus office of NAI Welsh.

One major project under way in Columbus is the 1.5 million sq. ft. Polaris Fashion Place, slated for an October 2001 grand opening. The mall is anchored by Lazarus, Sears, JCPenney, Kaufmann's, Lord & Taylor and Saks Fifth Avenue. Polaris Fashion Place is a prime example of the trend sweeping Columbus that focuses on higher-quality retail and better-located retail, Powers notes. Polaris Fashion Place, which is located along a prime interchange, also will be the first Central Ohio location for Kaufmann's, Lord & Taylor and Saks Fifth Avenue.

Omaha is another Midwest market enjoying the perks of a strong local economy. Retail sales in the Omaha MSA have been fueled by above-average spending power. According to the U.S. Census Bureau, Omaha's household income in 1999 averaged $58,902 compared to the U.S. average of $56,184. Approximately 500,000 sq. ft. of new retail space is expected to be built in Omaha this year, according to a market report released by Pacific Realty/Grubb & Ellis, Omaha. New retailers entering the market for the first time include a 130,000 sq. ft. Lowe's Home Improvement store, a 200,000 sq. ft. Super Wal-Mart and an 80,000 sq. ft. Cub Foods.

Chicago continues to flex its muscle as a powerful retail market. More than 8.7 million sq. ft. of retail centers were in the planning stages at year-end. "We're experiencing very strong, stable, continued growth," says David Bossy, president of Mid-America Real Estate Corp., Oakbrook Terrace, Ill. On average, the Chicago market has seen 4 million to 6 million sq. ft. of new space added each year for the past 15 years, Bossy notes.

One major project under way in metro Chicago is Deer Park Town Center, which will be an open-air lifestyle center at the intersection of Long Grove Road and Rand Road in Deer Park, Ill. Lifestyle centers such as Deer Park continue to score points with shoppers. "People don't want to go to the mall anymore," Ahlert says. Having large big-box retailers and traditional mall tenants down the street is beneficial to consumers who are increasingly pressed for time, she adds.

Deer Park Town Center will feature 500,000 sq. ft. of upscale retail shops, restaurants and entertainment. Retailers are flocking to the center where the average household income within a 5-mile radius is more than $114,670. "Based on demographics, the Deer Park location was probably one of the most sought-after sites in the Chicago marketplace," says Daniel Hurwitz, an executive vice president at Developers Diversified Realty Corp. of Beachwood, Ohio.

The upscale center has created a strong demand among national retailers. Signed tenants include Gap, Pottery Barn and Restoration Hardware. There is still a tremendous desire for space.

"We're seeing national tenants stepping up to locations that were traditionally reserved for local and regional tenants," Hurwitz says. Deer Park Center is a joint venture development between Beachwood, Ohio-based Developers Diversified and Memphis-based Poag & McEwen Lifestyle Centers LLC.

The project will hold its grand opening this summer. Developers Diversified also plans to build a 200,000 sq. ft. power center across the street from the Deer Park project.

Big boxes expand Three to four years ago the big retail story was the failure in the big-box category, yet those problems have not curbed new retail expansion in this sector. "I would never have guessed that we would see so much activity in the big-box arena," Caruso says. Big-box retailers, primarily grocers, discounters and home improvement stores, are driving much of the new retail construction throughout the Midwest.

Chicago's home improvement sector has seen Handy Andy and Builders Square close stores. Meanwhile, Home Depot, Menards and Lowe's Home Improvement are all still aggressively expanding. Obviously, the industry has been consolidating, and it is likely to continue, Caruso says. HomePlace and Just for Feet are two retailers on shaky ground. HomePlace recently emerged from bankruptcy, while Just for Feet recently declared bankruptcy. In Columbus, 1999 retail store closings included Sun TV, HQ and Service Merchandise.

"Those retailers that are still standing have pretty healthy balance sheets and are poised for additional growth," Caruso says. Names such as Home Depot, Wal-Mart, Target and Lowe's all have strong economic fundamentals and continue to perform well on Wall Street. Credit Suisse First Boston recently upgraded both Home Depot Inc. and Lowe's Cos. from a buy to a strong buy.

Wall Street certainly is playing a role in the continued retail expansion. "When you look at a retail company and try to gauge where they are from a revenue standpoint, you need to show growth," Caruso says. Although retailers are squeezing incremental growth out of individual stores, he says the real growth comes from adding new stores.

Continued store expansion is a part of the growth strategies for these big-box firms. Home Depot, for example, currently operates 761 stores and plans to be operating 1,900 stores in North and South America by the end of 2003. In Minneapolis, Home Depot recently announced plans to nearly double its current base of stores in the Twin Cities to about 20.

Drug stores make strong showing Grocers, general merchandise and home improvement retailers take credit for the lion's share of the new construction. The drug stores also continue to battle formarket share with a flurry of new store development. In St. Louis, Walgreen's is on an expansion track with 13 stores added or relocated in 1999. Four to six more stores are planned for 2000. Meanwhile, CVS is reported to be looking for sites in the market. Home Depot has opened eight sites in metro St. Louis with more on the way. Developers Diversified is building a 317,305 sq. ft. power center in Arnold, Mo. The project is anchored by a Home Depot, a Walgreen's and an 18-screen Wehrenberg Theatre.

Home Depot is anchoring similar projects throughout the Midwest, including Ramco-Gershenson's White Lake Market Place. The 350,000 sq. ft. shopping center is under construction in White Lake Township, Mich. The project features tenants such as Wal-Mart, Home Depot and Farmer Jack. Ramco-Gershenson also is building the 650,000 sq. ft. Auburn Mile in Auburn Hills, Mich. The project, which is slated for a fall 2000 completion, includes big-box anchors such as Target, Meijer's, Best Buy and Ethan Allen.

In 1998, 4 million sq. ft. of big-box space was absorbed in the Chicago market. That figure was not surprising, considering the volume of space left empty by closings such as Builders Square and Ventures, Bossy notes. However, 1999 activity exceeded that of the previous year, with 4.3 million sq. ft. of absorption attributed to continued appetites among mid-size retailers such as Hobby Lobby and Bed Bath & Beyond, Bossy says. Cub Foods also absorbed several existing sites, including the former Horizon Foods in Chatham Ridge, Ill., and a TJ Maxx in Round Lake Beach, Ill.

"What is new and different is that category killers have not been driving expansion like they have in the past," Bossy says. Brands such as PetsMart, Circuit City and Barnes & Noble are doing "onesie twosie" developments, he says. "They are not as active across the board," he adds.

Retailers that have been the most active in Chicago and throughout the Midwest include Wal-Mart, Target, Home Depot, Lowe's, Meijer's and Menards. The grocers also are responsible for considerable new development. The big three in Chicago - Jewel, Dominick's and Cub Foods - have begun aggressively rolling out new stores.

"We've seen a noticeable slowdown in intermediate big-box activity in the 20,000 to 50,000 sq. ft. range," agrees French. The bookstores, computer operations and office supply retailers have slowed expansion activity because they are reaching the saturation point in some cases. In addition, sales figures coming out of the new stores are not as strong as some retailers would like, he adds.

Discounters do battle Discount stores are fueling much of the new construction. "I think we're probably somewhat indicative of the balance of the Midwest," French says of Indianapolis. "Essentially, what we are seeing is expansion by discount department stores. That genre is very, very active in this market," French says. Wal-Mart, Target and Home Depot have all been aggressive in the Indianapolis market.

Southport Commons is one new project on the south side of Indianapolis that will be anchored by Target and Home Depot, accompanied by another 150,000 sq. ft. of small shop space. In addition, construction is under way on Avon Town Centre on the west side of Indianapolis. The 600,000 sq. ft. center will be anchored by Target, Old Navy, JoAnn Etc., Linens & Things and Office Max.

Meanwhile, Kohl's has plans to open about 200 stores around the country and Target is rolling out new stores throughout the Midwest, including its 170,000 sq. ft. super stores. Kmart has snapped up about 20 vacated Ventures stores in the Chicago market to open its Super K and Big K stores. "They have got great locations that they have taken over," Ahlert says.

Big boxes are both developing new locations and expanding existing locations. In Indianapolis, "We're seeing a significant amount of repositioning of stores by big-box users, such as Target, Meijer's and Wal-Mart," Perlstein says.

Retailers are searching for prime locations, as well as sites that can accommodate a larger footprint. "Anywhere Wal-Mart exists, if at all possible, they are converting to super stores," he says.

The 240,000 sq. ft. Super Wal-Marts offer all the same merchandise as a Wal-Mart discount store, as well as meat, produce, deli, bakery, dairy, frozen foods and dry grocery items.

Discounters' continued push into the grocery sector is having a significant impact on existing grocers. "It will increase the grocery wars, and you're going to see some definite price cutting to compete with Wal-Mart and Target," Perlstein says.

In addition, grocers have expanded their inventory of convenience items and have added amenities such as photo finishing, florists and coffee bars. "They're trying to make the shopping experience more comfortable and keep people in the store longer."

Home-oriented stores gain ground Another big expansion push is coming from the home improvement and home decorating niche. "There seems to be a real groundswell towards home decor. I believe that's going to be a big part of our business going forward," says P. Martin Yates, senior vice president, leasing, at Glimcher Realty Trust. Restoration Hardware and Pottery Barn are two home decorating stores that have been expanding their presence in the Midwest.

Despite the fall-out of Handy Andy and Builders Square in the Chicago market, Home Depot and Menards continue to expand their presence, and now Lowe's plans to enter the Chicago market. "I wouldn't be surprised to see them come in and build 20 to 25 stores," says Rich Tucker, president of Tucker Development Corp. in Highland Park, Ill.

Menards purchased a 14-acre parcel in Bolingbrook, Ill., and construction began in March on a 140,000 sq. ft. home improvement superstore at Route 53 and Rockhurst Road. The Menards property is part of a 67-acre land site zoned for residential and commercial uses being developed by U.S. Equities Development LLC at Route 53 and Briarcliff Road in this southwest suburb of Chicago.

New home concepts include Home Depot's EXPO Design Centers and Sears Roebuck and Co.'s introduction of The Great Indoors. Sears plans to open four to five Great Indoors stores in the Chicago area. "These are two new exciting retail concepts that will have an interesting effect on Chicago," Bossy says. The EXPO stores provide products and services related to design and renovation projects, including high-end interior design products such as cabinetry, flooring and light fixtures. The Great Indoors specializes in home furnishings and redecorating.

Redevelopment answers needs Lack of land and attractive demographics in mature markets is responsible for a redevelopment surge. Another factor driving redevelopment is a push by retailers to expand or revamp existing stores. "Obviously, retailing continues to evolve, and retailers see an advantage in expanding their mix of product to appeal to a wider audience," Gershenson says. For example, Ramco-Gershenson's redevelopment of Southfield Plaza in Southfield, Mich., involved a 20,000 sq. ft. expansion for Burlington Coat.

One such redevelopment is Tucker Development's Pointe Plaza in Niles, Ill. The 335,000 sq. ft. project involved the demolition of an older industrial facility. The shopping center, in the process of opening its stores, features anchors such as Wal-Mart, Cub Foods, Babies R Us, Walgreen's and Office Depot. Tucker also plans to break ground this spring on another new project in Niles. The development requires the demolition of an old industrial building to make room for a new, freestanding Dominick's.

Glendale Centre is an older, enclosed mall in Indianapolis that is in the midst of a major redevelopment to convert the property to a lifestyle center format. New tenants to the 600,000 sq. ft. project include a 120,000 sq. ft. Lowe's, Old Navy, Staples and a 12-screen theater. One unique aspect of the mall is that a 25,000 sq. ft. space on the mall's second level was leased to a local library. The space had been difficult to lease because of its location, but it proved to be an ideal solution for the library, which had run out of space at its existing location, Perlstein says.

Ramco-Gershenson has a significant redevelopment project under way in metro Detroit at West Oaks Shopping Center. Changes at the 450,000 sq. ft. center include a Kohl's expansion from 70,000 to 90,000 sq. ft. and the addition of a two-level JoAnn Etc. Ramco-Gershenson also is repositioning its 325,000 sq. ft. Roseville Plaza in Roseville, Mich. The company plans to demolish 60,000 sq. ft. of existing space to make room for a new 130,000 sq. ft. Wal-Mart. CVS will relocate to a new, larger 10,000 sq. ft. location within the center.

Additional redevelopment opportunities are opening up in vacant space left behind.

"What we're seeing is a lot of potential redevelopment where Wal-Mart has relocated," French says. The 80,000 to 100,000 sq. ft. boxes that have been vacated are creating opportunities for retailers, such as Hobby Lobby, to grab the second-generation space and take advantage of favorable rents, French says.

How long will good times last? Despite the continued wave of redevelopment and new construction, many wonder how long retailers can sustain the expansion. Although some are concerned the development will lead to an over-retailed market, that is not the case in the Midwest.

However, a rise in interest rates is the most likely factor to put a damper on new construction, he points out. "That is going to be the thing that diverts the level of activity taking place today."