Here's a riddle: What regional market is so desirable that retailers take numbers to expand there — yet this same market severely constricts retail development?

For people in the Pacific Northwest, specifically in Seattle and Portland, the conundrum sounds familiar. Here, the prevailing government — and popular — sentiment keeps development within certain geographic boundaries.

“The region is all about strict growth management,” says Mason Frank, CEO of Lake Oswego, Ore.-based MBK Northwest Ltd. Portland has an urban growth boundary to control city sprawl, says Frank. “We call it a supply constraint market.” Both Seattle and Portland enjoy strong demand, but don't have many sites available for new construction, he says.

Limiting growth sometimes makes sense, which is why even developers tend to be supportive. “The controlled growth consensus protects Seattle's lifestyle and its environmental quality,” says Bill Gerrity, president and CEO of Carlsbad, Calif.-based GMS Realty LLC.

The riddle's result: Redevelopment of existing shopping centers is prevalent and any vacated space is snapped up quickly by either expanding or new retailers.

Spurring retailers' interest is the Pacific Northwest's favorable demographics. Portland-based Norris, Beggs & Simpson's first quarter 2001 report cites U.S. Census Bureau figures showing that Oregon and Washington added 1.6 million residents during the 1990s. Washington's population jumped by 21.1% during the decade. Oregon's population swelled by 20.4%.

The influx resulted in a highly desirable customer profile — “relatively well educated and affluent with higher disposable income,” says Bruce Johnston, regional vice president of leasing for Santa Monica, Calif.-based The Macerich Co.

Despite the fact that the shopping demand is high, “The Pacific Northwest is one of the few U.S. markets that has not been overbuilt,” Johnston points out. “And productivity is significantly better in this region. Normally, people look for centers that do sales of $400 per sq. ft., but it's not unusual in the Pacific Northwest for centers to do sales of $500 to $600 per sq. ft. The volumes are just phenomenal.”

Seattle

A total of 1.5 million sq. ft. of space in anchored centers is under construction in the Puget Sound region, say Rolland Jones, vice president and designated broker in The Staubach Co.'s retail services office in Seattle, and John Dunton, CCIM, associate broker, with more than 4 million sq. ft. proposed.

The brokers suggest more than a dozen retailers are active in the area, including Wal-Mart, Best Buy, Lowe's, Target, Bed Bath & Beyond, Linens ‘n’ Things, Pier 1 Imports, Coldwater Creek, and grocery stores Safeway and Albertson's. Staples recently opened six stores in the Seattle area.

Big grocers are gearing up to sell gasoline and install drive-up windows to compete with Walgreen's and other drug stores, the financiers note. And some retailers, such as Target, are experimenting with vertical growth.

On the south side, MBK Northwest is repositioning Parkway SuperCenter, a 4 million-sq.-ft. redevelopment that will boast 15 retailers, nine restaurants and a 12-screen Regal cinema. Stores signed include Best Buy, Old Navy, Baby ‘R’ Us, Cost Plus World Market, Michael's, Comp USA, TJ Maxx, Party City, Ethan Allen, Thomasville and Bassett. “Parkway has doubled its sales per sq. ft. and stores are seeing 10%- to 25%-per-year increases,” Frank says.

The most desirable areas in Seattle, Gerrity says, are the east side and up the 405 corridor. Also strong is north of downtown, up the 5 corridor.

GMS Realty acquired two Seattle area properties totaling 360,000 sq. ft. for $40 million this past December: Fairwood in Renton and Covington Square in Covington. The centers are acquiring new tenants and will have grocery anchors such as Safeway, Fred Meyer, QFC and/or Albertson's.

The Corner at Bellevue Square landed Crate & Barrel as its anchor tenant. A 110,000-sq.-ft. addition to the 1.3 million-sq.-ft. Bellevue Square, The Corner includes restaurants and retailers, such as Starbucks coffee and Borders Books and Music. It is linked to the existing site by a 4,000-sq.-ft. atrium called The Lodge at Bellevue Square. Locally based Kemper Development Co. is the developer.

Although retail vacancies have increased modestly, notes Susie Detmer, sales associate with CB Richard Ellis in Seattle, “Anyone without a presence here is trying to get in.” Lucky Jeans and Kenneth Cole entered the market, and Saks is looking for locations. High-end boutiques such as Quiksilver, Diesel, Escada and St. John, also are scouting the market.

“Downtown Seattle is quite vibrant,” Detmer says, “with a retail vacancy rate under 5%. I just wish I had more space.”

Currently under development, Redmond (Wash.) Town Center, one of four malls The Macerich Co. owns in the region, will have a 536,000-sq.-ft. retail core, a hotel and an office complex.

Johnston says active retailers are Crate & Barrel, Coldwater Creek and Hot Topic. Also seeking sites are Journey, The Buckle, Chico's, Children's Place and Pacific Sunwear.

In Tacoma, Wash., MBK Northwest is redeveloping Lakewood Mall as a power center and adding 1.2 million sq. ft. of peripheral space. Joining anchor Safeway will be Target, Bed, Bath & Beyond, Office Depot, Barnes & Noble and Loew's Theater.

Portland

“Portland is a secondary market, with no high vacancies or spikes — strong, but not heated,” says Joseph Wood, executive vice president in the Portland office of Norris, Beggs & Simpson. Wood finds leasing to be flat, with existing retailers such as Walgreen's, Wal-Mart and Fred Meyer, providing the only “bread-and-butter” activity at neighborhood shopping centers. He notes that Whole Foods and Brewery Blocks are new retailers to Portland.

The key to future retail development in the Pacific Northwest, Wood asserts, will be in mixed-use development — retail ground floors with office on the second floor.

Busy with mixed-use, MBK Northwest is developing the retail/entertainment portion of CascadeStation, a $400 million, light-rail-oriented project. “The 120-acre, master-planned project is being built around a Main Street idea,” says Frank. “Marketplace shops will be situated around a big public square.” Rental rates are $16 to $20 per sq. ft. for larger-format or anchor retailers and $22 to $26 per sq. ft. for specialty retailers.

Rent growth and demographic growth are keeping the retail environment healthy, says Stuart Tanz, CEO of Pan Pacific Retail Properties, a Vista, Calif.-based retail REIT. “We're seeing continued strong demand for space from within and outside the market,” says Tanz. Pan Pacific owns grocery-anchored shopping centers in the West, including Oregon and Washington.

The Festival Cos., Los Angeles, is redeveloping 12 gas station properties in the Seattle and Portland areas, says president Mark Schurgin, into freestanding restaurants, convenience stores, banks or coffee shops, or as strip shopping centers of 8,000 to 10,000 sq. ft. And, not surprisingly, Schurgin adds, “We're seeing major interest from retailers.” For them, being there is what it's all about.

Paula Stephens is an Atlanta-based writer.

Movers ‘n’ shakers

In the Pacific Northwest, the prevailing government (and popular sentiment) keeps development within designated geographic boundaries. Both Seattle and Portland enjoy strong consumer demand. Neither city has many sites available for new construction. Nonetheless, national retailers continue to expand in the region.

Below is a list of some of the retailers experts say are most active in the Pacific Northwest.

  • Best Buy
  • Wal-Mart
  • Lowe's
  • Target
  • Coldwater Creek
  • Bed Bath & Beyond
  • Linens ‘n’ Things
  • Old Navy
  • Gap
  • Crate & Barrel
  • Pier 1 Imports
  • Safeway
  • Albertson's
  • Fred Meyer
  • QFC