As new retail shopping areas sprawl beyond the seven hills that define Cincinnati, civic leaders have allocated $100 million to save the troubled downtown. Last December, the city paid Saks Fifth Avenue $6.6 million to stay at the 483,000-square-foot Tower Place, renovate its 185,000-square foot store and renew its lease for an additional 15 years. Kroger got $16 million from the city to spruce up its Cincinnati headquarters and 12,000-square-foot downtown store.
Still, defections continue. Last month, Williams-Sonoma, Banana Republic and Essentials for the Body and Soul shut their doors at Tower Place, citing disappointing sales. And Closson's furniture closed its 137-year-old flagship store.
Tiffany & Co. and Brooks Brothers, which opened stores in the Federated Department Stores-owned Fountain Place shopping center in 1997, remain for now. The 800,000-square-foot Fountain Place is anchored by Lazarus-Macy's. “The area still has eight Fortune 500 companies, so the money is there,” says Morton Schwartz, a senior sales associate at NAI Eagle Realty. Indeed, weekdays, the central districts draws as many as 80,000 workers, many of whom are young professionals, says Kathy Schwab, director of operations for Downtown Cincinnati, an economic development agency.
“Revitalizing downtown's retail core has been a challenge,” says David Ginsburg, Downtown Cincinnati president.
Nordstrom recently turned down the city's $40 million incentive to open stores in two separate locations, one downtown and the other at Deerfield Towne Center in the suburbs of Warren County. Developers speculate that the retailer is still interested in the metro area, but hasn't found the right location yet. Nordstrom, which already operates one Ohio store in Columbus, declined to comment.
Local developer Jeffrey R. Anderson Real Estate and Indianapolis-based Don M. Casto Organization dominate most of the retail market in central Cincinnati, mainly reconstructing older properties. Cap rates run from 8 percent for older shopping centers with a smaller tenant base to 10 percent for newer retail properties that are anchored by big-box chain stores, says John Abram, retail specialist at Grubb & Ellis West Shell Commercial Real Estate.
Located just north of the Ohio River and south of Redbank Road along I-71, downtown, with only 4,000 residents, doesn't have much housing. But more than 338,000 residents live within five-miles.
Meanwhile, new retail is spreading into the northern suburbs (see story on page 45), where two major lifestyle centers are being built, but the city is hoping that its huge financial investment — the largest tax incentive in Cincinnati's history — will kick start downtown's retail hub into full recovery.
The city is working out redevelopment plans but has yet to hire anyone to spearhead the entire recovery, says Chad Muniz, economic development director for the City of Cincinnati. One of the pending projects to rebuild Fountain Square, a nine-block retail area surrounding Fountain Place.
“Downtown has been planning to rebuild the market for years,” says Stan Eichelbaum, president of Marketing Developments, a retail research group based in Cincinnati. “But remember what Mark Twain said, ‘When the world ends, I want to be in Cincinnati because it's always 10 years behind the times.’”
Public-private investment ventures hope to diversify downtown by redeveloping cultural institutions. The city just completed construction on two new ballparks last March, is currently building a new contemporary arts center and museum and has plans to reconstruct the 50-acre Cincinnati Central Riverfront Park.
The retail market in greater Cincinnati, that includes Warren, Butler, Oakley and Clermont counties, and parts of northern Kentucky and southeast Indiana, is stable. Retail sales are $10,932 per capita, greater than the state's average $9,181, reports the U.S. Census Bureau. Retail rents vary widely, depending on quality and location. Space at older centers generally costs between $8 and $15 per square foot. Newer, densely populated properties range from $25 to $40 per square foot, according to NAI Eagle Realty.
Big-box chains have spread across the city's dense upstate region within the past 18 months. Wal-Mart recently closed a store to open a super store one exit south on I-75. Target, Sam's Club and Meijer have leased space at the recently renovated Center of Cincinnati, a 440,000-square-foot shopping center in Oakley's former Cincinnati Milacron machine tool factory.
Just to the south, also on Milacron property, Vision Land and Trademark Properties are jointly developing MillWorks, a $225 million 1.3 million-square-foot mixed-use complex, to be completed in the fall of 2005. “The development lands right at the point where I-71 and I-75 converge, so we'll capture several affluent neighborhoods,” says Tom Carter, principal at Forth Worth, Tex.-based Trademark Properties. The project will be four miles from General Growth Properties' Kenwood Towne Centre, Cincinnati's fortress mall.
Reversing the Trend
Downtown's economy began slipping in the mid-1990s after a rash of layoffs.
Retail vacancy rates shot up at the end of 2003, to 15.9 percent from 13.2 percent, after corporations including Procter & Gamble and Convergys Corp. cut more than 1,700 jobs.
As redevelopment progresses slowly, downtown is trying to rebuild its residential community. “What downtown needs is more traffic, more people in the streets,” Schwab says, adding that part of the problem is the area's low housing inventory.
But that could change. The residential market is expected to nearly double in the next 10 years, to more than 2,500 apartments from 1,800 apartments, Schwab says. Homeownership rates are also expected to increase once local developers convert old rental units into condominium lofts expected to go for $200,000 per home. Now, 90 percent of downtown's residential units are rentals, she says.
The average annual household income downtown is $42,000, higher than the city's average of $36,175, according to Downtown Cincinnati.
Market Profile/Cincinnati
DEMOGRAPHIC OVERVIEW
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Total Population, Cincinnati 2003: 835,362
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Unemployment Rate: 4.6%
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Median Household Income: $40,964
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Median Home Price: $111,400
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Income Per Capita: $24,053
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Vacancy Rate, Retail: 7.2%
Total Population, Downtown 2003: 4,000
Unemployment Rate 2002: 5.4%
Median Household Income 2002: $25,447
Median Home Price 2002: $110,500
Median Rent Unit (2-bedroom) 2002: $600 per month
Downtown Income Per Capita 2002: $13,686
Vacancy Rate, Retail 2003: 15.9%
Sources: Census Bureau; NAI Eagle Realty; Downtown Cincinnati Inc.; Grubb & Ellis West Shell Commercial
WEST CHESTER OVERVIEW
Total Population, West Chester 2003: 56,000
Unemployment Rate 2002: 4.4%
Median Household Income: $71,454
Median Home Price: $195,000
Income Per Capita: $29,866
Vacancy Rate, Retail: 9.2%
Sources: Census Bureau; NAI Eagle Realty; SEBC Chamber of Commerce.
Northern Lights
Upscale retail moves out beyond the hills, to northern suburbs.
Beyond Cincinnati's seven hills, nearby communities West Chester and Mason are luring retailers from downtown and attracting some that haven't been in the area before. In fact, local residents brag that their neighborhood is “the new downtown.”
Continental Real Estate Cos. has nearly finished construction on the first phase of Streets of West Chester, a $100 million, 110-acre, mixed-use center, near I-75 and Union Boulevard. “West Chester is the first suburb outside of the city, so the location couldn't be better,” says David Kass, president of Continental. “This area only has meat-and-potatoes-type of retail, so it's been starving for an upscale experience.”
The center includes 450,000 square feet of retail space, and is anchored by Barnes & Noble, J. Jill, Chico's and a Rave Theater. Adjacent to I-75, the demographics are favorable. Forbes Magazine ranked this Butler County area the best place to live in Ohio. Population has grown 42 percent since 2000, to 56,054 residents; the average home price is $195,000; and it has a lucrative, white-collar demographic with a median household income of $71,454.
In Mason, four miles from West Chester, Jeffrey R. Anderson Real Estate and Casto Organization will open the Deerfield Towne Center, an $82 million, 420,000-square-foot lifestyle center on Mason-Montgomery Road, in August 2005. Tenants include Bed Bath & Beyond, Birkenstock, Borders and Johnny Rockets.
Morton Schwartz, senior sales associate at NAI Eagle Realty, doesn't think the northern growth will ever replace downtown. Not all residents want to trade the city for the hills. “There's really no comparison,” he says. “The suburbs have yet to generate enough density to replace downtown. That won't happen for another 10 years.”