Updated at 12:40 PM with information on Konterra and quotes from Caleb Gould and Thomas Archer.
While the prospects for new retail development are bleak nationally, Maryland’s Prince George’s County—with its low unemployment rate, high median income and relative stability—is bucking the odds.
To be sure, the county is feeling the effects of the Great Recession and the slow recovery that’s unfolding. But by and large it has weathered the economic cycle better than many other parts of the country. In addition, even with the contraction in consumer spending, Prince George’s remains an under-retailed area. As a result, while developers have pulled the plug on projects elsewhere, a number of high-profile projects remain in the works in the county.
The largest attraction in the region is Peterson Cos.’ National Harbor, a mixed-use complex with 7.3 million square feet of space that includes a resort and convention center, office buildings, retail and entertainment, residential units and four piers and two marinas. The project will host the ICSC Mid-Atlantic Idea Exchange this year as the convention relocates from downtown Washington D.C., where it has been held the last several years.
In addition to National Harbor, another big project in the works is the $1.8 billion Konterra mixed-use community that includes research and technology campuses alongside a retail complex, single family homes and 348 acres reserved for a governmental, educational or corporate facility. That project is being shepherded by Forest City Enterprises and Konterra Realty.
One of the centerpieces of the development will be Konterra Town Center, an urban town center that will include retail, office, residential and hotel components. Currently, the developers have a line up in place for Konterra Town Center East, which will cover 488 acres and are still working on a program for another 253 acres on Konterra Town Center West.
The team behind the project has spent about three years working on the entitlement process and have now completed that through the detailed site plan stage for the retail component. The balance of the town center is approved through the preliminary plan, although specific site plans still need to be worked up.
"We are quite pleased with our progress with the county and the architectural character the center will be developed with," says Thomas G. Archer, vice president of development with Forest City Enterprises. "We have taken the project out to ICSC events and generally the site is looked at as one of the best--if not the best--greenfield new development locations on the East Coast."
There is also Petrie Ross Ventures LLC’s Woodmore Towne Center, which will include 800,000 square feet of retail space, 1 million square feet of class-A office space, two hotels and 1,100 residential units. The retail complex will be anchored by the county’s first Wegman’s grocery story and by Costco. Other notable commercial real estate projects include the $135 million University Town Center office and residential complex near College Park, the $500 million M Square research park, the 700,000-square-foot mixed-use Karington project and Ritche Station Marketplace.
Some of the credit for the advancement of these projects goes to the work county and municipality economic development officials have done in recent years to raise the profile of Prince George’s County.
“County executives, local council people and others been showing up at industry shows,” says Thomas H. Maddux, president of KLNB Retail. “That effort is bearing fruit. ... The fact that there will be a Wegman’s and a Costco in the middle of the county is a pretty big deal. In the past, it had its trouble attracting national players.”
Other major retailers that will open in the region include BJ’s Wholesale Club, which is opening at Ritchie Station, Best Buy, which has had success in the county already and will add a new store at Woodmore, and hhgregg, a regional electronics chain that is looking to expand throughout the Mid-Atlantic region and is targeting many former Circuit City boxes.
Perhaps that’s why the vacancy rate for all retail property types remains fairly low, according to data from NAI Global. Neighborhood centers in the county have a vacancy rate of 7.9 percent while community and power centers have a vacancy rate of 2.4 percent and for regional malls it is 3.4 percent.
Another reason the county is seeing interest from retailers is its strong demographics. For example, 24 percent of the households within a five mile radius of the Woodmore Towne Center boast incomes greater than 100,000, according to Petrie Ross Ventures. In 2009, the average household income in that same trade area was $76,738. In addition, the unemployment rate at the end of November in the county was 7.4 percent—lower than the national rate of about 10 percent. And the county actually added jobs, primarily because of government hiring.
But that’s not to say that everything is bright in the market. The overall office vacancy rate in the fourth quarter reached a 14-year high of 20.8 percent and rents in that sector are now 8.1 percent off where they were in the fourth quarter of 2008, according to a report from Cushman & Wakefield. Submarkets with the highest vacancies include Bowie (32.7 percent), Greenbelt (26.9 percent) and Oxon Hill/Suitland (25.5 percent), according to the report. The industrial market has exhibited similarly softness.
In addition, the retail projects under development in the county were slowed a bit by the downturn. At Woodmore, for example, vertical construction began in September and the project will open this fall—two years later than developers originally intended.
“It got caught in the downturn,” Maddux says. “If it started three years sooner, it would be leased and open. It’s gotten dragged along, not because of entitlements or financing, but tenant commitments. Deals got delayed.”
But the project has gotten over the hump. As it stands, the Petrie Ross has leases and letters of intent signed for 75 percent of the space that is opening in October, including for major tenants such as Wegman’s, Costco, Best Buy and Petco.
Meanwhile, at Konterra, Caleb Gould, a represent of family partnership that owns the land on which the project is being developed, said the economy "has had a dampening effect on everybody across the board, but on balance I think we’ve been very active and we’re proceeding rapidly with our program. We haven’t let up on doing the work the we need to be doing for our project."
In all, Prince George's County stands as one of the most attractive opportunities for retail developers in the nation.