The Mid-Atlantic region beckoned retail development during 1998, and developers came with a vengeance. The region was transformed from a habitual under-achiever into one of the hottest retail landscapes in the country.

The physical and financial heart of the region -- Washington, D.C., northern Virginia and the Maryland suburbs to the north and northwest of the district -- is booming.

The Baltimore metropolitan area has logged its share of development in the past year as well. Not to be denied, the southern Virginia regions around Hampton Roads and Richmond also showed strong growth during 1998.

With a few qualifications, most observers believe the regional economy will continue to thrive throughout 1999 and 2000.

Darker times The rosy outlook follows six years of devastation. Between 1992 and 1997, the Mid-Atlantic suffered economic hardship in the wake of the recession that began the decade and the downsizing activities of the federal government that ensued.

The recession slammed into the region, ruining its base of manufacturing businesses.

Then came the effects of victory in the Cold War. As the federal government cut defense spending, the mighty defense industry of Maryland and Virginia wilted. Incomes declined. Population growth slowed as people moved away with the idea of tapping into the economic recovery bubbling up in the rest of the country.

Recession and federal government downsizing have recast the Mid-Atlantic regional economy into something new. Over the past six years, advanced technology employers, bio-technology startups, financial services businesses, healthcare companies and a variety of new-era firms have sprung up. Since 1997, these firms have begun to flourish. Incomes have rebounded. Population growth has returned.

These are the fundamentals necessary to drive retail development, and the Mid-Atlantic has finally got hold of them.

Washington Metropolitan Region The population of the Washington metro area will grow from 4.2 million to 4.4 million people by 2003, according to Sales and Marketing Management Magazine.

The magazine also projects that average after-tax household incomes will rise from $59,383 to $67,531 per year over this five-year period.

At the same time, job growth in the region has turned in its best performance in a decade, according to "Trendlines '99," an annual overview of the real estate business in Washington/Baltimore, published by Transwestern * Carey Winston and its research affiliate Delta Associates, based respectively in Bethesda, Md., and Alexandria, Va.

During 1998, the Washington Metro region added 68,300 jobs, 23,200 more jobs than in 1997. Job creation across the region drove unemployment down to 2.9% in 1998 from 3.5% in 1997, well below national averages.

The strong economic performance has led to a strong retail performance, in terms of new development and sales.

Neighborhood and community shopping centers stand out as the liveliest market in the region, according to the "Year End 1998 Report: The Washington Area Retail Market," another report published by Transwestern * Carey Winston and Delta Associates.

The report estimates that demand for grocery-anchored strip centers hovers between 1 million sq. ft. and 2 million sq. ft. per year. Since the beginning of the decade, however, this demand has gone largely unmet. During 1997, for example, only 600,000 sq. ft. came online. In 1998, for the first time in a decade, area developers met the demand, delivering 1.7 million sq. ft. "The (neighborhood center) development pipeline has finally returned to par and should deliver about 1.7 million sq. ft. of new grocery-anchored shopping centers per annum over the next three years," says the report.

Another 800,000 sq. ft. of renovation will give a new look to the region's neighborhood centers, says Gary Lawrence, senior managing director of Insignia/ESG, Inc., a Washington-based leasing company.

Larger projects have sprung up as well. In Silver Spring, just north of Washington, the center of town has languished for more than a decade. In 1998, the Peterson Cos. and Folger Pratt Inc. announced a mixed-use redevelopment effort that will add 500,000 sq. ft. of retail, 200,000 sq. ft. of office space, 160 residential units and a hotel to the town center.

Chicago-based McCaffery Interests plans to transform the 270,000 sq. ft. Mazza Gallerie in Chevy Chase, Md., into a pedestrian center, bringing it up to par with other upscale area offerings.

Delta Associates reports that The Cordish Co., Baltimore, intends to redevelop the U.S. Air Arena in Prince Georges County into an urban-entertainment complex with sports themes called Capital Center.

Then there is Dulles Town Center, the first regional mall built in the Washington metro area in a decade. Hecht's, JCPenney, Lord & Taylor and Sears will anchor the 1.4 million sq. ft. center, developed by Bethesda, Md.-based Lerner Enterprises.

Mall renovations are under way as well. Los Angeles-based Westfield America recently completed a purchase of Wheaton Plaza, just north of Washington in Montgomery County. The company has announced a $100 million renovation that will add 600,000 sq. ft. to accommodate a new department store, several restaurants and a theater.

In Washington proper, at least three major new retail developments are pacing a revival of the city's fortunes.

At 7th and H Streets, the John Akridge Cos. and Western Development are working on a 500,000 sq. ft. urban-entertainment project called Gallery Place, which will complement the new MCI Center athletics complex.

A couple blocks north, D.C.'s new convention center is nearing completion. According to Delta Associates, "the new center will enable the city to compete on a national scale with other convention cities ... (and) ... complement the economic resurgence of downtown Washington, attracting further investment in retail projects in the area."

In northeast D.C., adds Delta, a developer named Doug Jemal is building a town center project around a former People Drug Store. The 780,000 sq. ft. project will provide 480,000 sq. ft. of retail space.

"There is a lot of activity in D.C.," says Len Harris, vice president of retail leasing for Transwestern * Carey Winston. "AMC recently committed to a 22-theater megaplex at Gallery Place, and a number of major retailers are hovering around, looking for opportunities."

Indeed, retailers have taken note of the development activity throughout the Washington metro region. Delta Associates reports that 10 retailers and restaurateurs have announced plans for new outlets.

* Daily Grill will open a third store this year.

* Dollar Express plans five openings during 1999.

* Johnny Rockets will open six new restaurants in the area by 2000.

* Old Hickory Grill will build three or four new restaurants in the region.

* Pier 1 Imports has signed leases for four new area stores.

* Ruby Tuesday's will add five to 10 new restaurants in the region during 1999.

* Sneaker Stadium plans a 10- to 14-store rollout in the region following a successful market test at Tyson's Corner in northern Virginia.

* Today's Man will add two stores to its current area roster of four.

* Video Warehouse will add six stores to its current 17 locations in the region in 1999.

* The Vitamin Shoppe will open six new stores.

Baltimore Metro Region Just 30 miles north of D.C., the Baltimore metropolitan region, with its 2.4 million population, labors outside of the spotlight cast by the nation's capital.

Overall, the Maryland economy has performed well in recent years. The state recorded its strongest job growth and lowest unemployment in a decade during 1998. According to The Baltimore Sun, preliminary figures from the Bureau of Labor Statistics suggest that Maryland added more than 50,000 jobs during 1998. Most of this good news probably relates to Maryland business development in suburban Washington, however.

Statistics suggest that the Baltimore metro area continues to struggle with dying, but not dead, recessionary forces set in motion at the beginning of the decade.

According to Delta Associates, for example, the region's employment has grown at an uneven pace throughout the decade. Take the last three years, for example. In 1996, a paltry 9,400 jobs were created. A wild 1997 followed, with the arrival of 25,600 new jobs. Last year, though, job creation plunged to a mere 7,500.

Nevertheless, pockets within the metropolitan area offer household incomes high enough for major retailers to target. In northern and western Baltimore County, which surrounds the city of Baltimore, median household incomes are approaching $65,000 per year, according to David Ward, vice president of H&R Retail, Inc., a Chevy Chase, Md.-based property management firm.

"There is no question that retailers are hungry for as many new locations as they can find in these areas of Baltimore County," Ward says. "But space is tight when it comes to new projects.

"In the past 12 months," he adds, "we have found locations for a new Target and a new Lowe's along the York Road corridor in the north. In the same area, at the renovated Hunt Valley Mall, a new Wal-Mart opened this year. Not far from there, a new Home Depot is now under construction."

On the western edge of Baltimore, H/P Cos., a northern Virginia developer, plans a major renovation and expansion of Westview Mall. The expansion will add a Lowe's Home Center, says Insignia/ESG's Lawrence.

Other than these examples, new retail development in suburban Baltimore was fairly tight in 1998, again because of a lack of available land.

Baltimore City has seen major development in and around its Inner Harbor core. During 1998, The Cordish Co. completed work on The Power Plant, an urban-entertainment complex adjacent to the National Aquarium and within one-quarter mile of the Inner Harbor. The $30 million complex brought in Hard Rock Cafe and ESPN Zone, both of which are new to the area. Barnes & Noble also signed up, bringing a third store to the area. Gold's Gym is also coming into the complex.

According to an economic development report issued by Baltimore City, the early success of The Power Plant has led Cordish to explore expanding development with new space for an existing Inner Harbor restaurant, called Chart House, and a major retailer new to the region.

In December 1998, an 80,000 sq. ft. children's museum called Port Discovery opened across the street from the Power Plant and Inner Harbor. One of the largest children's museums in the country, the $32 million project aims to attract 450,000 visitors a year, adding to the city's status as a family destination.

Not far from the Inner Harbor, Baltimore Orioles owner Peter Angelos has purchased One Charles Center, a 24-story landmark office tower. Angelos plans to spend $13 million renovating the structure and adding street-level retail, including an upscale restaurant.

Add to all this the 1998 opening of PSI Net Stadium, a new state-of-the-art football stadium adjacent to Orioles Stadium at Camden Yards.

The Baltimore economic development report also notes that among the projects related to a major redevelopment of land a couple miles east of the Inner Harbor is a $56 million waterfront office and hotel complex being designed to include retail space.

Hampton Roads and Richmond Activity in the Washington metro area also tends to overshadow its Virginia neighbors to the south, in Hampton Roads and Richmond.

Hampton Roads lies along Virginia's southeastern coast and includes eight cities in close proximity to each other: Chesapeake, Hampton, Newport News, Norfolk, Portsmouth, Suffolk, Virginia Beach and Williamsburg. The region is home to 1.6 million people, making it the 27th largest metropolitan area in the nation. It's a growing area, too. The population has increased by more than 7% since the beginning of the decade.

Thanks to the large military base located here, the region boasts a low unemployment rate of 3.7%.

"The military base makes people think we're all military, but we're not," says Sharon Ryals Taylor, senior vice president and director of retail services for Goodman Segar Hogan Hoffler LP, a Norfolk-based commercial real estate company. "Then again, it does keep our economy stable."

Median household income stands at $38,320, enough to attract new development. The Taubman Co., Bloomfield Hills, Mich., for instance, is developing a $30 million regional mall in Norfolk. The 1.2 million sq. ft. project will be anchored by Dillard's and the first-ever Nordstrom in Hampton Roads. "The Nordstrom entry into our market has done a lot for us," Taylor says. "It has given other major retailers, who might not ordinarily consider our market, a reason to explore what we have to offer. For example, Lord & Taylor plans to become the fourth anchor at Lynnhaven Mall in Virginia Beach, which is undergoing a $100 million expansion."

Beyond this, Taylor tallies 865,000 sq. ft. in new and expansion strip center work in progress throughout Hampton Roads.

"A couple of big-box retailers have also entered our market," she says. "Home Depot plans to open six stores in six of the region's cities. Books-A-Million joined us with a store in Newport News during 1998. Best Buy has a store under construction in Chesapeake. And Ukrops, an upscale supermarket from Richmond, is planning a store in Williamsburg.

"In a nutshell, there is a lot of activity here. In fact, things have never been better," Taylor says.

In Richmond, development has boomed in recent years. With a population of 937,400 and a growth rate of better than 8% for the first half of the decade, the metropolitan area is poised to move past the magic population figure of 1 million within a few years.

"Employment has done extremely well in the region," says Cecil Sears, director of Economic Research for the Richmond-based commercial real estate firm of Rountrey and Associates Inc. "Job growth has been in the range of 15,000 jobs per year for three or four years. Incomes have started to benefit from this. For 1999, I'd say the median household income for the region will be just over $41,000, up from $38,500 two years ago. That's a huge jump for two years."

Developers and retailers taking notice of Richmond include Forest City Enterprises, Home Depot and Kohl's.

Forest City is planning an entertainment-retail center in western Henrico County, which borders the city to the north. Development has already begun on a big-box center in the region's other major suburban market, Chesterfield County, to the south.

Home Depot entered the market with three new stores during 1998, and Kohl's has opened two new stores.

"A lot of older strip centers are being renovated, primarily in Henrico and Chesterfield counties," says Sears. "Two streets generate most of this activity: West Broad Street in Henrico and the Midlothian Turnpike in Chesterfield. Both are retail magnets for big-box retailers like Circuit City, Wal-Mart, Sam's Club and Service Merchandise."

All in all, after a lagging recovery from the recession of 1990, most trading areas within the Mid-Atlantic region have entered a period of revival, characterized by new development and redevelopment opportunities.