Over the past decade, we've seen retail shopping evolve, by necessity, to a much more experiential event, one requiring more creativity and more options in the development process. Today's retail “destinations” demand more: more from the entire development team — from leasing through project management — and more from the project, both shell building and retail stores. The holy grail of both developers and retailers — higher rents, higher sales volumes — directs the dynamics of their new collaborative attitude toward a mutual goal: engaging the shopper.
So what does this retail evolution mean for the developer? In a word: flexibility. The landlord's bulkhead is no longer inviolable. Demising lines wiggle their way to more prominence. The push-and-shove of lease negotiations becomes the give-and-take of a successful project. Those lease exhibits once so sacrosanct — the Tenant's Exhibit B, the Landlord's Exhibit C — no longer retain their written-in-stone reputation.
Retailers, too, have learned when it pays to give a little. The old axiom from your corner diner, “Price, Quality, Service — Pick Any Two,” succinctly defines today's negotiation process. The retailer wanting an exclusive, gated trash receptacle within 20 feet of their service entrance may have to forsake that request for laser-scoped floor tolerances. Likewise, the tenant asking for a sky-high parapet with signage visible from outer space just might get it — but at a price.
The impetus for this shift in dynamics is today's trend toward premier retail projects — lifestyle centers, vertical retail, New Urbanist projects. They all require a little more handholding than previously, a longer courtship before the deal is inked. Fairmont Properties, the developer of Hudson, Ohio's New Urbanist project “First & Main,” targeted an apparel retailer who required an unplanned change in entry façades and storefront pop-outs in violation of the public right-of-way. In response, the developer revised the base building architecture to accommodate the new entry while also going to bat with the city, obtaining a project-wide easement for sidewalk-encroaching pop-outs. In turn, they landed their apparel retailer as a key addition to the project.
The intensity of vertical projects require an even longer dance between landlord and tenant, often beginning while the base building is still on the drawing board. Extremely high-end projects like The Forum Shops expansion, a three-story addition to this Las Vegas landmark, and The Pier at Caesars in Atlantic City seek to lure one of a kind international retailers with exacting standards. Visibility issues, specialized security, serviceability — all are issues pertinent to a retailer whose only other store sits, perhaps, on Rodeo Drive or Rome's Via Condotti at street level. Harry Winston jewelers, for instance, has different requirements from your neighborhood Zales, just as Gucci has demands varying from, say, Gap. With these tenants, developers may find themselves in an extended dialogue unthinkable a decade ago.
Increasingly, we find the previously crisp distinction between tenant space and common area blurred with today's breed of lifestyle projects and main street properties. Developers and retailers willing to explore the symbiosis between the two find themselves both winners. When outdoor outfitter and future tenant The Orvis Co. realized landlord The Richard E. Jacobs Group would be installing a water feature — called Curiosity Creek — in its new development at Raleigh's The Commons at Triangle Town Center, Orvis asked that the headwaters be widened to create a casting pond. Orvis then built an inviting deck off their storefront overlooking the newly expanded water feature for shoppers and imaginary fishermen alike to enjoy. Would such collaboration have existed a decade ago? Perhaps not.
Many developers now take a proactive stance in engaging retailers in an active role in the development process long before rent starts. At the Dorsky Hodgson-designed Legacy Village lifestyle center, Cleveland developer First Interstate Properties allowed “endcap” retailers to actually design their corner's base-building architecture, agreeing to split the expense with the respective tenants. Regional retailer Arhaus Furniture created an exemplary storefront, even removing the landlord's bulkhead to create a concave storefront and patio melding seamlessly with the common area. The retailer's bold request for a freestanding column-mounted sign, independent of the base building, was met with an equally bold nod of approval from the developer.
Working Together
Poag & McEwen Lifestyle Centers wisely develop properties highly empathetic to their retailer's demands for better exposure and branded imagery. Ask any crowd of shoppers in a lifestyle center to point out a project's Pottery Barn before signage is installed and, without hesitation, fingers all point to the iconographic Greek entablature soon to sport those channel cut letters — it's where they all head on opening day. When Anthropologie was invited to join the tenant roster at Evergreen Walk, Poag & McEwen's newest lifestyle project, Anthropologie answered with an entirely new design for their base building, not just their storefront.
The aforementioned “Price, Quality, Service — Pick Any Two” mentality is a two-way street. With today's premium projects, demanding retailers add stress to the time-and-staff intensive process leading to Grand Opening. The days of rubber-stamping a conforming lease — or a set of tenant plans — for the next project are near extinction. Project managers can no longer manage the shell building and insure that Tenant “A” got his sprinkler inspection in time. Increasingly, developers are valuing the crucial roles of communication, collaboration and service in the development equation, beginning with the first L.O.I. forward.
Despite the novel demands of this retail evolution, our clients find their projects exceeding $400 per square foot in sales, with occupancy costs half that of yesterday's enclosed regional mall. And that makes for a trend easy to forecast: a closer marriage of developer and retailer, together building the next retail “Destination.”
GREGORY R. GUNTER
Vice president of San Diego-headquartered 3rd Works Retail Development Services, providing nationwide landlord for retail project management and tenant coordination.
PROBLEM AREAS
Increasingly, we find previously crisp distinction between tenant space and common area blurred with today's breed of lifestyle projects and main street properties.
MOVING FORWARD
The days of rubber-stamping a conforming lease — or a set of tenant plans — for the next project are near extinction.