The southeastern United States has maintained its status as a region with a strong and growing economy, having once again surpassed the national average for economic growth. And Dixie's rising population statistics, low unemployment numbers and increasing average salary figures mean more disposable income for residents and increased opportunities for retailers.
For 1998, the Southeast economy in terms of overall gross state product (GSP) is expected to increase 3.7% compared with 3.5% for the nation as a whole. And the climate and job opportunities continue to attract large numbers of new residents every year.
The overall picture is positive, but many firms are having difficulty finding enough employeesto meet their expansion needs.
"While the Southeast continues to grow faster than the national average in several areas, the economic development of a few of the region's more active states is being hindered by labor shortages," says Mary Kassis, research coordinator with the Economic Forecasting Center (EFC) at Georgia State University in Atlanta.
For example, North Carolina's GSP growth of 4.7% led the region in 1997. This year, however, the EFC projects the state's growth rate at only 3.5%, which would place it fourth behind Georgia, Florida and South Carolina. "The biggest reason for that is that company growth is being stymied due to a lack of employees," Kassis explains.
June unemployment figures underscore the problem. North Carolina's jobless rate is just 3% and only 1.8% in the important, high-tech Raleigh-Durham market. To varying degrees, the problem is a regional one, since unemployment in every southeastern state is below the national average, according to EFC statistics.
The main problem appears to be the strong national economy. "Things are good all over," stresses Kassis. "With opportunities everywhere, there is not as much need for people to move to the Southeast as there was a few years ago."
But pockets of active growth do exist. Retailers are interested in the region, and developers are eager to cash in on opportunities.
Well-located and well-tenanted centers are benefiting from the interest. "The market is very strong with regard to leasing, and from a seller's standpoint there is a big demand to buy shopping centers," says Reto Schnieder, president of Atlanta-based Baita International LLC. "Prices are very high from a historical perspective, but interest rates are at historical lows, and that makes thepossible."
The majority of retail construction continues to be grocery-anchored centers and freestanding development. "I have seen statistics claiming that as much as half of all new retail development is of the freestanding variety," says Peter Pelt, vice president in the Atlanta office of Dallas-based Trammell Crow Co.
Georgia Georgia is expected to regain the regional lead in GSP growth this year with a projected increase of 4.7%. Georgia led in growth leading up to the 1996 Olympics before it was surpassed by North Carolina in 1997.
The state's strength is a strong, balanced economy, Kassis says. In addition, the labor shortages that are hurting the rest of the region are less severe in Georgia because Atlanta is a great attraction for college graduates.
EFC reports the state's unemployment rate at 4.1%, which is healthy while also providing some room for job growth.
Population statistics provided by Charlotte-based NationsBank indicate that as of January 1997, Georgia had added 1 million new residents this decade for a total of 7.48 million. Furthermore, it projects the population to increase another 11.3% in the next decade.
San Francisco-based Marcus & Millichap's retail report on the Atlanta market projects the population in the city's 20-county metropolitan statistical area will grow 12% to more than 4 million by 2002. The Gwinnett submarket, northeast of the city, long a major growth area, currently has 1.81 million sq. ft. of retail construction under way, almost half of the metropolitan area total.
Despite these figures, some say the market has cooled. "There has been a slowdown in development, but the market is still brisk," says David Birnbrey, president of The Shopping Center Group, Atlanta.
He says the market is overbuilt and will experience an increase in vacancy in the coming months, but he doesn't foresee a problem. "There have been some bankruptcies and store closings among the big-box chains, and these size stores affect vacancy more quickly," he says.
In downtown Atlanta, a new sports arena, NHL franchise, nearby apartment development and the completion of Centennial Olympic Park are recent changes being cited that could help make a success of Underground Atlanta. The 30-year-old, 227,000 sq. ft. restaurant and entertainment project, which is currently 40% vacant, is being marketed for sale by the Atlanta office of New York-based Cushman & Wakefield.
At mid-year, Atlanta-based Jamison Research Inc. reported overall retail vacancy in Atlanta at 7.6%. This included a 6.9% rate for power centers, 8.6% for community/neighborhood centers and 2.7% for regional malls.
It is the low vacancy rate in the regional mall area that has spurred recent development. Two 1 million-plus sq. ft. regional malls are under construction and scheduled to open within the next 12 to 18 months: In Gwinnett County, Mall of Georgia at Mill Creek is being developed by Atlanta-based Ben Carter Properties and New York-based Corporate Property Investors; and in Douglasville on the west side, Arbor Place is being developed by CBL & Associates Properties Inc., Chattanooga, Tenn.
In addition, The Mills Corp. recently announced a megamall project for Gwinnett County on a site at Sugarloaf Parkway and Interstate 85, about five miles from the Mall of Georgia project. "The Mills Corp. has already acquired the land, and it has plenty of money to build it," says Kris Cooper, senior director in the Atlanta office of Cushman & Wakefield.
Questions abound concerning the ability of the market to successfully support all of these new projects, and most retailers seem to be taking a wait-and-see attitude.
"There is uneasiness among some mall retailers concerning the amount of overlap there will be," Birnbrey says.
Power center development also has been sparked by these mall projects. One new center is almost complete and a second is planned around Arbor Place. And Birnbrey says four major projects are under way around the Mall of Georgia.
The big-box market is undergoing some changes in Atlanta. Kirk Buttle, associate director in the Atlanta office of Cushman & Wakefield, says Staples has announced it is entering the market to compete with Office Depot and OfficeMax, and Costco is battling Sam's Club. Meanwhile, Toys 'R' Us and Wal-Mart are relocating and/or expanding numerous stores, and CompUSA has acquired Computer City, which may lead to some store closings.
Grocery store construction seems to have slowed despite the fact that it still makes up much of the new development. Publix has opened 70 stores in the past four years, and Kroger has expanded to 96 stores. Pelt says the best locations may already be taken.
"The market leaders have to be approaching a saturation point," he says. "Kroger did an excellent job in Atlanta of expanding and relocating stores to meet the onslaught of Publix, and what you now have is a market where the top two operators have almost all new facilities."
In the face of stiff competition, Harris-Teeter has opened seven stores in the market in the past three years. "But they tend to need more upscale locations," Pelt says. Furthermore, he points out that Bruno's, which has filed for bankruptcy, had 18 locations in the Atlanta market with most stores being sold to Ingles.
A possible sleeper in the grocery category is Wal-Mart, Pelt says. "They have not taken their strictly grocery concept out of Arkansas yet, but with strong corporate backing, it could be a force in the years to come," he explains.
With all of the recent consolidations, the drugstore market in Georgia now belongs to CVS and Eckerd. Both chains are building the larger, freestanding stores with enhanced food operations and drive-in windows in "high-profile, easily accessible sites," Buttle says. Walgreens is looking for 15 sites for its first expansion into the Atlanta market, but so far is having difficulty. "There are not many good sites left," he says. "So it is possible it may not happen. They know from watching Publix enter the market that you have to do it in force."
Another interesting retail battle is between home improvement chains Home Depot and Lowe's. While this competition is occurring in many markets nationwide, the drama is heightened in Atlanta because it is Home Depot's home turf.
And the home team isn't necessarily winning. "I have to give Lowe's kudos," Buttle says. "They are making a strong showing in a market many experts thought they should avoid."
In Augusta, the major retail happening has been the opening of Target, Circuit City, Winn-Dixie and CompUSA, all anchors in a new power center development on the city's west side, says Mac Johnson, an associate broker with Coldwell Banker/Jim Courson Realty, Augusta. Dillard's also opened as an anchor at Augusta Mall.
In Columbus, retail development is burgeoning on the north side of town along the J.R. Allen Parkway. Target, Home Depot, Lowe's and Publix all have new stores in the area, says Danny White, a realtor with Kennon, Parker Ducan and Key, a local real estate firm. In the city's historic district, the River-walk area is a growing hub of mostly locally owned restaurants and shops. White says the city has invested a lot in the develop-ment, and it continues to pay dividends.
Florida In the Sunshine State, the population of 14.7 million is twice that of Georgia and North Carolina combined. So any percentage shifts mean big numbers, the kind retailers like. For instance, the state added 300,000 new residents in 1997, according to Census Bureau statistics. That is twice the number of residents Mississippi added this decade.
Taking this into account, the state is predicted to see 4.4% GSP growth in 1998, second only to Georgia in the region. Tourism remains the driver of the economy, although Kassis points out that a resurgence in ship building along with oil and gas discoveries off the coast have boosted production as well. In addition, she says, Miami is a major business gateway to South America's markets. Employment is strong with an annual growth rate of 3.8% in 1997, compared with the national average of 2.6%.
Residential growth and high incomes continue to provide retail opportunities in the coastal areas of Florida, including cities such as Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Naples and Tampa. Residents and retail chains also are attracted to the two Orlando and Jacksonville markets, both of which are experiencing good job growth.
Retailers expanding in the state include such big-box stores as Lowe's, Borders Books, Barnes & Noble, Home Depot, Hollywood Video, Old Navy, Burlington Coat Factory, Toys 'R' Us, T.J. Maxx, Oshman's SuperSports USA, Michael's and Just For Feet. OfficeMax, Staples and Office Depot also are considering sites. While mergers have resulted in some vacant big-box space, most of it is being absorbed.
In addition to these big-box retailers, Wal-Mart will be expanding its Supercenter concept in rural markets across the state. One of the company's targets is the Panhandle area, which is continuing to see retail growth, although on a much smaller scale due to the relatively sparse population.
In the grocery market, two of the most active chains are Publix and Winn-Dixie, which are battling for the lead in much of the state. Albertson's, Whole Foods, Food Lion (which acquired Kash N' Karry) and Harris-Teeter also have a presence in the state.
(For more information on the Florida market, please refer to SCW August.)
The Carolinas North and South Carolina have seen somewhat of a reversal of roles in the past year. Retail development in North Carolina has slowed because most chains have entered all of the desired markets. In South Carolina, however, development has picked up, with tourism along the coast is spurring a great deal of activity along the Grand Strand.
Tourism, manufacturing growth centered on Greenville, and in-creased port activity in Charleston are among the major reasons South Carolina's GSP rose 4.4% in 1997 and is expected to increase 4% this year and the next, says Kassis. The state trails only Florida and Georgia in the region. The Census Bureau reports the state's population was 3.76 million in 1997 with an annual growth rate of 1%.
The fastest retail growth in the state is along the Grand Strand, a 60-mile stretch of coast from Georgetown to the North Carolina state line. "It is a very healthy retail market that is experiencing great demand from national chains," says Randy Bosse, senior vice president with Burroughs & Chapin Co., Myrtle Beach. "The occupancy level (averages) about 95% for retail."
The tourism industry is booming with 15 million annual visitors who spent approximately $6 billion last year, double the amount five years ago, Bosse says. He adds that the resident population also is growing due to interest in the area by retirees. "The value you get for your money is a major attraction to seniors," he explains.
Burroughs & Chapin is a major player in the area, and in addition to four retail properties currently open, the company has about 2.75 million sq. ft. of retail space in the planning stages and scheduled to open within the next five years. The projects range from neighborhood centers to power centers and even a 1.3 million sq. ft. regional mall that the company is planning in a partnership with CBL. The Mall of South Carolina is tentatively scheduled for a 2001 opening.
Along the Interstate 85 corridor in the Greenville/Spartanburg/ Anderson market, manufacturing is the foundation of the economy. Recent expansions by BMW and Fugi Films have helped job growth and spurred some residential growth.
In Columbia, the economy is traditionally stable, since 30% of the workforce is made up of government employees, estimates Rox Pollard, a retail specialist with The Keenan Co., Columbia. Regal Cinemas, Publix, T.J. Maxx, Old Navy and Bed, Bath & Beyond have recently opened in the city.
Other retailers active in the state include Target, Toys 'R' Us, The Sports Authority and SteinMart along with the home improvement, book and electronics chains. Wal-Mart is closing its smaller stores across the state in favor of its Supercenter format. In the grocery arena, Bi-Lo and Food Lion are very active along the coast, while Winn-Dixie has a stronger presence inland and is adding new stores, Bosse says. Other grocery chains that have a presence in the state include Harris-Teeter, Kroger and Publix. CVS and Eckerd Drugs are the state's dominant drugstore chains and, as in other areas, are aggressively opening freestanding locations.
In North Carolina, the state's percentage economic growth may be down, but the actual numbers remain substantial. Census statistics for 1997 reported the population at 7.42 million, just behind Georgia for third in the Southeast, and NationsBank estimates the state will grow another 10.6% between the years 2000 and 2010.
The state's manufacturing sector has stabilized, and high-tech companies will continue to thrive even if the labor shortage squeezes them a bit. Undoubtedly, when the strong national economy begins to falter, North Carolina will be a destination for many workers looking for new opportunities.
In general, the state's retail market is healthy but appears to be taking a breather after several years of rapid growth. Most retail development has slowed but only because retailers have filled the market niches they believe will be successful, says Steve Vermillion, president of Charlotte-based Crosland Retail.
He estimates the specialty shop retail vacancy rate in Charlotte at 4% and the overall vacancy rate between 6% and 7%. "And I don't see those numbers changing much within the next year or so," Vermillion says. Complicated zoning issues, which can be difficult to maneuver, are limiting new development and keeping supply in check.
New growth is expected to start south of town as construction continues on Charlotte's perimeter, Interstate 485. Part of the road has been completed and a good bit of development is under way," Vermillion says, adding that most of it has been grocery-anchored, neighborhood centers. Harris-Teeter and Food Lion have the largest share of the city's grocery market, with Hannaford Brothers, Bi-Lo and Winn-Dixie active as well.
"As the outer belt grows, it will support more retail, but that will take another three to five years," he says. The next link in the I-485 construction will be on the west side with the entire ring not scheduled for completion before 2005.
According to Vermillion, completion of the southern section of the road has increased sales at Carolina Place Mall. Overall, the city's three malls have low vacancy and are doing well. There is talk of a new mall on the north side of Charlotte along Interstate 77, but no definite plans have been announced. On the south side, the Mall at South Park plans to add another anchor.
The Raleigh-Durham market has seen a 23% increase in population since 1990, spurred by three nearby universities and Research Triangle Park. This growth has inspired several mall projects, including one recently announced by Chicago-based Urban Shopping Centers Inc., to be located along I-40 between Raleigh and Durham. Most of the new retail development is centered on Cary, a suburb west of Raleigh. Expanding retail chains in the market include Home Depot, Lowe's, Kmart, Waccamaw Pottery, Michaels and CompUSA. Wal-Mart also is planning to convert some of its stores to its Supercenter concept.
Kroger is the major player in the grocery arena, competing with Food Lion and Harris-Teeter. Meanwhile, CVS and Eckerd are busy constructing freestanding stores.
Similar market conditions exist in Greensboro/Winston-Salem, although the market is smaller. A good deal of large center redevelopment is making room for a few expanding retailers.
In general, none of the state's markets has been affected by big-box consolidation. Strong sales have allowed merged chains such as T.J. Maxx and Marshalls to keep both locations open.
"We have not seen a weakening in any of the state's major markets in recent years," adds Vermillion.
Tennessee The rebound in the auto industry helped Tennessee's GSP rise 4.3% in 1997, Kassis says, and although the state's economic growth isn't expected to be as strong this year and next, the retail markets are doing well.
The state's population of 5.36 million placed it fourth in the region, and NationsBank projects another 9% growth in the next decade. The state also is expected to be in the top one-third nationally in income growth.
Beginning to the west along the Mississippi River, Memphis has a retail vacancy of 12%, says Glenn Wilson, vice president of The Weston Cos., Memphis.
"But there is very little vacancy left in good locations," adds Terry McEwen, president of The Poag & McEwen Group, also based in Memphis. He adds that little new retail development is under way, which is leading to a rise in rental rates.
Most of the metropolitan area's new retail growth is taking place around Wolfchase Galleria, a mall northeast of the city, and in South Haven, Miss., to support new residential growth in this bedroom community south of the city. Wilson says another important growth area is the recently completed, 10-mile section of the Nonconnah Parkway that links Memphis with Collierville, Tenn., to the southeast.
Home Depot dominates the home improvement market, since Lowe's is not represented in Memphis. Kroger leads the grocery market, while Albertson's has entered the area, having purchased the Cecil's grocery chain from Bruno's. Walgreens is the dominant drugstore chain, competing with locally based Super D. Best Buy, Computer City, Old Navy and Rhodes are a few other national chains that have recently opened stores in the market.
Further east in Nashville, the music industry is not the only show in town. Suburban auto plants, the state government and the medical industry also are driving the local economy.
Retail vacancy is under 5%, and growth is occurring around Rivergate Mall to the northeast and CoolSprings Galleria to the south, Wilson says. Two other malls, Hickory Hollow to the southeast and The Mall at Green Hills, a high-end center to the southwest, have no outparcel or peripheral development opportunities left.
"Nashville is seeing a lot of grocery store development," Wilson continues. Albertson's entered with its acquisition of Bruno's, and Harris-Teeter has opened two stores in the high-end markets of Brentwood and Bellemeade. Overall, Kroger is the market leader, with Food Lion and H.G. Hill also players. CVS and Walgreens are the primary drugstore chains, with both paying a greatdeal for quality corner locations. Eckerd keeps a lower profile in the market.
Lowe's, The Sports Authority, Best Buy and Rooms To Go are among the most active big-box chains in the market. In addition, Wal-Mart has added a Supercenter to the area. MediaPlay has closed two stores but remains in the market, and Regal Cinemas recently purchased a 27-screen complex from Cobb Theaters.
Further east, Knoxville has no large retail development under way and "the grocery market is saturated," says Tracy Clabough, a broker with the local firm of Collins Sharp & Koella. Kroger, Food Lion, Food City and Bi-Lo are the main grocery chains; CVS and Walgreens are the dominant drugstores.
South, on the Georgia border, Chattanooga is continuing efforts to revitalize the Ross's Landing area downtown, which includes the Tennessee Aquarium as its centerpiece. River Valley Partners, a locally based, public/private organization is spearheading the effort. Numerous restaurants and theaters have already been added to the nine-block area, says Rich Bailey, director of the ChattanoogaBureau, a department of the local Chamber of Commerce.
The Hamilton Place Mall district remains the focus of most retail development in the city.
Alabama and Mississippi In these two states, the region's smallest in terms of population, retailer interest is lessened because most chains need only two or three locations to meet demand.
In Alabama, the GSP continues to lag behind most of the region, remaining around 3%. Kassis points to the decline of the textile industry as a major obstacle for the state's economy. But, she says, a continued retooling of the industrial base with additions such as the Mercedes Benz plant, which opened near Tuscaloosa two years ago, could bolster the local economy.
NationsBank estimates Alabama's 1997 population at 4.32 million, an increase of less than 300,000 this decade. No quick change is forecasted, as the total is expected to rise only 6.5% over the next decade.
In northern Alabama, the Birmingham market is seeing an unusual retail concept, in which one traditional mall anchor is teaming up with a small group of other mall tenants to form a power-center sized property. "It is like someone cut a wing off a regional mall and created a smaller center," explains Bob Lily in the Birmingham office of Atlanta-based JDN Realty. One such project that opened last fall was The Summit, located southeast of the city, and featuring Parisian, Abercrombie & Fitch, Old Navy, Banana Republic, Williams-Sonoma and The Gap.
Lily adds that local malls are reasonably strong and are not seeing much redevelopment activity. One change, however, could be the addition of a Saks Fifth Avenue store in the near future. Locally based Proffitt's acquired Saks and moved the chain's offices to Birmingham last year. "The expectation is they will open a store here eventually," Lily continues.
On the home improvement front, Home Depot has three stores in the market while Lowe's has two stores and a third under construction. Lily says the major drugstore chains include CVS and Walgreens, which are scrambling for the best corner locations. Winn-Dixie is the most aggressive grocery chain, opening numerous locations in Birmingham and the surrounding areas. Jackson, Miss.-based Jitney Jungle acquired Del Champs, giving it six stores in the market.
On the Gulf Coast, Mobile has a healthy retail market with a vacancy rate of less than 4%, says Mack Graham, president of locally based Commercial Realty Management Group Inc. Bordered by Mobile Bay to the east and the Gulf of Mexico to the south, the city's development is limited to the north and west.
The city's two malls - Springdale Mall and Belaire Mall - are located across the street from each other on the west side. Both have low vacancy rates of around 5%, Graham says. Interestingly, Gayfers anchored one mall and Dillard's the other. Despite Dillard's recent acquisition of Gayfers, the company plans to keep both stores open.
Big-box development has been slow. Target entered the market with one store two years ago, and Wal-Mart has replaced its three older locations with Supercenter s. Lowe's has one store in the market and a second under construction to compete with Home Depot's single location.
Jitney Jungle acquired Del Champs grocery chain to compete with Bruno's, which has closed two local stores. Rite Aid and CVS are the two dominant drugstore players, and Walgreens is about to enter the market with numerous freestanding locations.
Mississippi is the Southeast's smallest state in terms of population, both in total number and in projected growth in the coming year. The Census Bureau reported the state's population for mid-year 1997 at 2.73 million, an increase of only 155,000 since 1990. This is an average annual growth rate of less than 1%. NationsBank projects the state's population to grow only 7.5% from 2000 to 2010.
Mississippi is also at the bottom in GSP growth, with the Economic Forecasting Center projecting a 2.9% increase this year. Kassis points out that a rise in the state's gaming industry and an expanding furniture industry have played the biggest part in the state's recent growth.
A number of new casinos have opened in the Gulfport area. In total, the gaming industry has increased its revenues by $200 million in the past year, says Bob Flowers, executive vice president of The Mattiace Co., Jackson. The casinos employ approximately 4,500 people in and around Gulfport, he adds.
Since the second quarter of 1993, Mississippi has experienced a net increase of 130,000 jobs. During approximately the same period, total personal income figures in the state have risen from $40 billion to more than $52 billion, according to NationsBank figures.
These increases, although small in relation to many other states in the region, have not been dismissed by retail chains and developers.
To this point, the markets have maintained a good supply and demand balance. "Occupancy is very good in just about all of the state's markets," Flowers says.
As in much of the region, the majority of retail development in Mississippi is grocery-anchored centers. Jitney Premium and Kroger are the two dominant grocery chains that have been driving activity, particularly in Jackson and Hattiesburg.
The wave of freestanding drugstores has arrived in Mississippi as well. CVS has a strong hold on the state market, but Walgreens recently opened two stores in Jackson and more are expected. "Eventually, they will move into most of the larger markets," Flowers predicts.
And although growth has been slower in the regional mall environment, there is some activity. In Jackson, North Park Mall and Metro Mall are being renovated. The newest addition is Bonita Lakes Mall, a CBL center that opened last November near Meridian in the east-central part of the state. Turtle Creek Mall in Hattiesburg opened only a few years ago.
Mall activity around the state is driving some power center development as well. In Hattiesburg, for example, the former Cloverleaf Mall has been converted into a power center featuring SteinMart, Albertson's and Hudson's, a local discount chain. Most of the other retail activity is occurring around Turtle Creek Mall on the city's west side. Meanwhile, Wal-Mart has opened three Supercenter concepts around town as well as a new Sam's Club.
In the northeastern part of the state, Elvis Presley wouldn't recognize his hometown of Tupelo. Flowers points out that the city has become a strong manufacturing center with higher income levels than most of the state. It also has become a regional shopping site for residents in parts of Tennessee and Alabama. Most of the retail development focuses on big-box chains and outlet centers, Flowers says.
Along the Gulf Coast, most retail developers are waiting for residential growth to increase. However, one new project is Crossroads Mall, located just north of Gulfport in the town of Orange Grove. The project, owned by Dallas-based Hunt Development, includes tenants Barnes & Noble, Party City, Office Depot, Circuit City, T.J. Maxx, Old Navy, Service Merchandise, PetsMart and a 12-screen Cinemark theater.