With the Puget Sound area economy outperforming the rest of the nation, Westfield America is taking steps to reposition its Westfield Southcenter mall to capture a larger market share. In October, Westfield paid $200 million to acquire the ground lease on the mall that it purchased in 2001. The ground lease gives Westfield a 50% interest in the property's income and will make it cheaper and easier to obtain financing in the future.
“It's a response to the growth and strength of consumer spending in that market,” says Bernard Haddigan, managing director of Marcus & Millichap's retail group. “As an, Westfield tries to create value and increase their shareholders' yield.”
The retail developer is also spending another $224 million on a 400,000 sq. ft. expansion that will add 75 new shops and restaurants. When the project is completed in 2009, the mall will have a total of 1.7 million sq. ft. of retail space, making it the largest shopping mall in the state. Westfield says it expects as much as a 10.5% annual return on the expansion.
Set on a 90-acre property in Tukwila, a suburb 20 minutes south of Seattle, Westfield draws shoppers from south King and Pierce counties, with little competition, explains Rolland Jones, vice president of GVA Kidder Mathews.
The combination of a land shortage, plus hilly, boggy terrain as well as the state's very restrictive Growth Management Act, have all served to make it difficult for other retailers to enter the market. In the 3.5 million sq. ft. Renton/Tukwila submarket, retail vacancies are just over 2% with direct asking lease rates at $27.76 per sq. ft., reports CB Richard Ellis.
Last year specialty retailers with space under 10,000 sq. ft. posted sales of $624 a sq. ft., according to the company's annual report. Research by theCouncil of Shopping Centers shows that the average sales per sq. ft. in the U.S. over the same period and property type were $407. But even four years ago, Westfield pulled in $450 to $460 per sq. ft. quite easily, explains Randy Woodle, managing director of retail asset services for CB Richard Ellis.
The area will enjoy 3.5% employment growth this year, according to the Puget Sound Economic Forecaster, roughly three times the national average. And personal incomes are projected to rise 9.1% this year, compared to the national average of 6.3%. The strong economy has also increased taxable retail sales by a projected 10% for 2006 and 7.9% next year.
Even so, Southcenter ranks second to last among the Puget Sound area's 13 major regional malls for shopper income, says Connie Wilde, senior associate in the Seattle office of CB Richard Ellis.
And while Southcenter has traditionally been positioned as a “juniors” mall aimed at younger and teenage shoppers, Woodle believes that the mall could support more upscale retail because of its location on the area's two main freeways.
Will Westfield target more upscale shoppers in the expansion? One clue: The new addition certainly will set a fancier table than the traditional mall food court. Westfield plans an atrium-style dining terrace with fireside seating and a view of Mt. Rainier.
“This is a very strong mall, very strategically located,” says Westfield spokesperson Catharine Dickey. “Our philosophy is to include the widest range of goods and services for consumers.”