Slower economic growth has yet to put the brakes on new community center development. “We haven't seen any slowing of activity, despite softening in the economy and declines in consumer confidence,” notes Mike Goman, president of Konover & Associates Inc. “If anything, things are a little busier for us.”

In fact, Konover expects development activity to increase in the next 18 months compared to construction levels during the previous 18 months. The Farmington, Conn.-based company, which recently built several Stop & Shop stores in New England, develops retail projects ranging from small grocery-anchored strip centers to major power centers.

Grocers continue to drive development of smaller in-line community centers. But Konover sees strong activity at both ends of the scale, Goman notes.

Others chart a similar pace. “We are really not seeing a slowdown yet,” says Dan Slattery, an executive vice president in the Chicago office of Kimco Developers Inc., a subsidiary of Kimco Realty Corp. “We're seeing a tremendous amount of activity.”

Kimco Developers currently has about 2.5 million sq. ft. of retail projects in various stages of development ranging from 85,000 sq. ft. to 1 million sq. ft. The steady flow of new construction may be due in part to the long lead times involved in getting projects off the ground.

“These are deals we have been working on for awhile that are just coming together,” Goman says. Konover recently sold land to Wal-Mart in Auburn, Maine, to build a super store. The developer is planning 160,000 sq. ft. of adjacent retail space. The Wal-Mart is expected to open this fall with the neighboring shop space opening in mid-2002.

Development opportunities

The full impact of a softening economy may still be on the horizon for community center developers. “Lenders and capital sources are more cautious because they are worried about a recession,” says Stephen Coslik, chairman of The Woodmont Cos. in Fort Worth, Texas.

But while development opportunities may be more difficult to find in the future, they definitely still exist. Population, for example, is driving development of grocery-anchored community centers throughout the country. Dallas-Forth Worth is one metro market that continues to see an explosion of grocer-anchored community center development. “We have one of the most competitive grocery markets in the country,” Coslik says.

Albertson's, Winn-Dixie, Kroger, Tom Thumb, Central Market and Fleming Foods are some of the brands that are active. In addition, Wal-Mart, Target and Costco have entered the market with food-oriented superstore concepts.

The underlying factor driving grocery expansion is population growth. In the next 20 years, the population in the Dallas-Fort Worth market is expected to double from about 5 million to 10 million, Coslik notes.

Woodmont is planning two grocery-anchored community centers in the Dallas-Fort Worth market. The developer expects to break ground this summer on The Shoppes at Deer Creek, a 100,000-sq.-ft., Albertson's-anchored center in Crowley, Texas. Another project slated to start in fourth quarter is Woodmont's Oak Grove Plaza in Sachse, Texas. Kroger will anchor the 225,000-sq.-ft. project.

Population growth has also attracted developers to the growing Phoenix market. The population in the Phoenix-Mesa MSA jumped from 2.2 million in 1990 to more than 3 million in 1999, according to the U.S. Census Bureau.

Capitalizing on this trend, Kimco Developers plans to break ground this fall on a grocery-anchored center in Chandler, Ariz. The 87,000-sq.-ft. Hamstra Square is expected to open in late 2002.

Super-sized

Developers are not only continuing to build community centers, they're building big centers. The size of community centers has exploded in recent years along with growing anchor tenants. “Our primary focus is development of large community shopping centers,” says Richard Baker, president of National Realty & Development Corp., Purchase, N.Y.

“Even with the current economy there are still a lot of goodopportunities. People who are active in the business can find good projects to do,” says Dan Slattery.

Big-box retailers such as Wal-Mart or Kohl's typically anchor the company's projects. “Tenants are getting larger and are pushing the size of shopping centers up,” Baker says. Ten years ago, discount stores were 60,000 sq. ft.; grocers were 20,000 sq. ft.; a movie theater was 10,000 sq. ft.; and a hardware store was 4,000 sq. ft. Today, the discount superstores are as large as 230,000 sq. ft.; hardware stores are 130,000 sq. ft.; movie theaters are 70,000 sq. ft.; and grocers are 60,000 sq. ft. “So shopping centers are closer to 500,000 sq. ft. compared to 150,000 sq. ft.,” Baker says. “Everything has been super-sized.”

For example, National Realty is developing a 900,000-sq.-ft. community center in Middletown, N.Y. The center, Orange Plaza, is anchored by a Wal-Mart super store, The Home Depot, Kohl's, Bed Bath & Beyond and Marshalls. “It's our opinion, that while it is very large, it is still a community shopping center,” Baker says. Completion is set for early 2002.

Large retail formats are boosting total square footage in new community centers across the country. Kimco Developers recently broke ground on the 255,000-sq.-ft. Northwoods Center in Tampa, Fla. Target will consume the bulk of retail space with its 186,000 sq. ft. super store concept. The project is expected to open in March 2002.

Strong retailers ranging from discount merchandise to grocers continue to march forward with expansion plans that in turn fuel community center development.

“Some retailers are being more selective and slower in their decision making,” Slattery notes. But retailers are moving ahead with plans for additional stores. “So even with the current economy there are still a lot of good opportunities,” he says. “People that are active in the business can find good projects to do.”

Beth Mattson-Teig is a Minneapolis-based writer.

NRF predicts economic recovery in 2001

Washington, D.C. — The National Retail Federation (NRF) says the U.S. economy is not in a recession. In fact, the association anticipates an upswing in consumer behavior toward the end of 2001, leading into a “U” shaped recovery for the current economic slowdown.

Writing for NRF's Retail Sales Outlook, NRF Chief Economist Rosalind Wells says, “Although the economy was unquestionably weak in the first few months of 2001, we see signs that the malaise will end and that economic activity will improve in the second half of the year.”

Wells points to several factors for her positive long-term outlook, including a stable housing market, the Federal Reserve's multiple interest rate cuts that will likely spark refinancing activity and put more money in consumers' pockets, and a still-positive job market.

According to the Retail Sales Outlook, NRF's quarterly economic forecast, the contrast between the economy being in overdrive and screeching to a near standstill is what is causing the pain. Wells says the lack of a true decline in economic activity and the positive employment and income picture supports her assertion the U.S. has avoided a true recession.

Wells observes the economy is unlikely to experience a fast bounce back, described by some economists as a “V” shaped recovery. Rather, the economy will probably evince a “U” shaped recovery, with a few more quarters of growth below the economy's potential — about 3.0% — followed by stronger results toward the end of the year.

Wells expects total consumer spending to grow 3.0% this year, less than the 5.3% of the last two years but still solid. She also predicted GAF sales (general merchandise, furniture and home furnishings) will grow 4.2% for 2001, compared to 6.8% in 2000.

In general, Wells does not expect a sharp re-acceleration in the economy, rather a gradual improvement. However, she remains upbeat about the retail industry's prospects in the near term. “Retailers will be faced with the challenges of less robust growth, but opportunities to excel will exist for those who factor the environment into their plans.”
— Source: National Retail Federation

Demand runs high

Demand remains high for well-located community centers. “We're not seeing evidence of a slowdown in leasing at our properties due to very desirable locations, and the fact that the markets we're in are under-retailed,” says Richard Baker, president of National Realty & Development Corp. in Purchase, N.Y. In fact, the firm is experiencing exceptionally high occupancies within its retail portfolio. “Many of our shopping centers are 100% occupied with waiting lists for tenants who want to come in,” Baker says.

“We haven't seen the bankruptcies malls have seen because we're dealing with the bread-and-butter tenants,” says Timothy Rubin, VP of community center leasing at Philadelphia-based PREIT.

Large and small retailers alike are exhibiting healthy appetites for space in community centers. “In the Northeast, we continue to see ongoing interest on the part of big-box anchors to get into these markets,” says Mike Goman, president of Farmington, Conn.-based Konover & Associates Inc. Big-box retailers such as Target, The Home Depot and Wal-Mart have entered new markets and are continuing to expand their presence. In addition, service tenants such as restaurants, dry cleaners and insurance agents are stepping up to absorb small shop space.

Despite the strong performance, caution is creeping into the market. “Given the state of the economy and recent bankruptcies, we tend to be a bit more careful about who we work with,” Rubin says. PREIT typically sticks with leaders in their retail categories, he says. “We're also keeping a close eye on the credit of the individual tenants.”
— Beth Mattson-Teig