Retail developers have become a bit more cautious in pursuing ground-up development in light of the economic slowdown and concerns about consumer spending. While few projects are being scrapped altogether, firms are pushing back projects in some instances to time the openings with what they hope will be a more auspicious economic climate.
Still, there are plenty of developments in the works this year, as evidenced by all the projects on display at ICSC's RECon show in Las Vegas. Overall, according to CoStar Group, the retail market has added 450 new projects already in 2008 bringing the total number of shopping centers to 98,791 with a total leasable area of 6.8 billion square feet of space. The majority of the projects coming on line are smaller centers. There are, however, a few notable exceptions. For example, Meadowlands Xanadu, a 2.3-million-square-foot retail and entertainment project outside New York City being developed by Colony Capital Acquisitions, Dune Real Estate Funds and KanAm USA is on pace to open next summer. Meanwhile, Westfield is working on host of projects, including a pair of 1-million-square-foot centers opening in London. One will come online this year and the other in 2011, in time to operate for the 2012 Summer Olympics.
"To bookend the east and west ends of London is a once in a lifetime opportunity," says Randall Smith, executive vice president of business development for Westfield.
That's a common refrain among the big projects moving ahead. Developers with unique opportunities in strong markets are the ones most likely to succeed in this climate.
"We have at least half a dozen deals in the development pipeline and are looking at several acquisitions," says Ross B. Glickman, chairman and CEO of Urban Retail Properties, a Chicago-based developer and third party property manager which has approximately 9 million square feet of developments in its pipeline. "I think the recession is here and it's been here for at least four months and we think there are opportunities in that. The earliest opening for our projects would probably be spring 2010--they are all mixed-use or lifestyle centers in major metro markets."
Bloomingfield Hills, Mich.-based Taubman hasn't altered its development strategy as a result of the economic turmoil continuing to focus on high-demographic and high-growth markets. “We are looking at projects that will stand the test of time," says Stephen J. Kieras, senior vice president development for Taubman. "As a matter of fact, because of the economy we are seeing more opportunities and we are being very selective about what projects we pursue.”
A challenge is being able to finance projects, however.
"For the right projects, we are still able to get financing, but lenders want more pre-leasing than in the past and more equity than in the past," says Greg Sembler, CEO of Atlanta-based Sembler. "Lenders now want to talk about debt coverage ratios, rather than loan-to-value. With pre-leasing, they want to know that at least the core anchor tenants have signed up, as well as some in-shop tenants. They are asking for 80 percent pre-leasing levels on the boxes, and 30 percent to 40 percent on in-line space."
-- Staff Reports