Some insiders wonder how long the good times will last. But with so many projects in the pipeline, don't expect a slowdown anytime soon.
Some of us probably can't remember what it was like before the beginning of the longest period of sustained economic growth in United States history.
The Southeast continues to enjoy the benefits of a powerful economy that has at times seemed impervious to slowdowns or the kind of bad news that in the past might have sent it into a tailspin.
In the Carolinas, Georgia, Florida, Tennessee, Alabama, Louisiana and Mississippi, incomes, employment, and, most of all, consumer spending, just keep barreling along.
During the past five years, the major urban areas of the region have boasted population growth of at least 10%. Atlanta, the economic juggernaut of the Southeast and one of the fastest-growing cities in the nation, saw its ranks swell by an average of 16%. Meanwhile, Raleigh-Durham, N.C., grew by 15%, Charlotte, N.C., by 12%, Orlando, Fla., by 14%, and Naples, Fla., by a whopping 18%.
This growth has helped fuel a near tidal wave of development in the region. Retail projects of all kinds are springing up as both new and familiar faces raise their flags to attract customers.
"What's driving the majority of projects are new retailer entries into the Southeast - the Kohl's, B.J.'s, and Costcos of the world that have not ventured into this particular part of the country but are now leapfrogging over markets," says Milton M. "Bubba" Smith, president of Birmingham, Ala.-based AIG Baker Development LLC. "Those new entries into the market - whether apparel or hard goods - are stimulating a lot of development. Another facet is that retailers are taking a look at smaller, second-tier markets in which they didn't think they'd open units. In many cases they hadn't pegged the market correctly. They discovered it to be a two-store rather than a single-store market. That's also stimulating growth."
In fact, Smith says, these smaller markets are benefiting from "an economy that is racing at light speed and has been for the past seven years." As a result, the prosperity that has saturated larger markets is also beginning to wash over the smaller second- and third-tier markets.
The recession question Any developer will tell you that times are good in the Southeast. Some, however, wonder how long those good times will last. Are interest rate hikes and technology stock tumbles the harbinger of a coming recession?
"The slowdown isn't exactly invisible, but it is hard to see," muses Smith. "It's a gentle slowdown. If you see rates go up, that flushes out the developers that aren't capitalized enough when lenders demand more equity."
Jimmy Culpepper, president of eastern retail development for Trammell Crow Co. in Charlotte, N. C. says, "Interest rates will slow development, and even though the economy remains strong, the stock market has not been kind to retailers. It would not be surprising if the pace of development slowed a bit, not in 2000 or 2001, because there is so much in the pipeline, but perhaps in 2002."
In the meantime the band plays on. Here's a look at retail activity in the Southeast.
Georgia Sherman may have burned Atlanta to the ground, but today there's no doubt this proud city has risen with a vengeance. In the 1990s Atlanta attracted more new residents than any other major metro area. As the dominant commercial, transportation and financial capital of the Southeast, it ranks as the fourth largest convention city, the ninth largest retail market and the eighth largest wholesale market.
"We are the dynamic retail market and we set the trend for all of the Southeast," says Ray Uttenhove, the Atlanta-based senior vice president of strategic retail partnerships for CB Richard Ellis of Los Angeles. "We play an important role by being a testing ground for what may ultimately happen in the rest of the region."
Uttenhove notes that Atlanta continues to support strong employment fueled by corporations such as Delta Airlines, BellSouth, AT&T, Lockheed Martin and UPS, coupled with residential growth that is fueling a wide array of new developments.
In just the past two years, metro Atlanta has opened two major regional malls - The Mall of Georgia by Indianapolis-based Simon Property Group and Atlanta-based Ben Carter Properties, and Arbor Place by Chattanooga, Tenn.-based CBL & Associates. A third major entry, the 1.1 million-sq.-ft. Mall at Stonecrest by Forest City Enterprises of Cleveland, Ohio, is coming in 2001.
Filling the void "I think this is in response to retailing voids that exist in Atlanta given the growth," says Uttenhove. "From a banking and technology standpoint, there is tremendous new growth and we are becoming a major technology center. We're adding 70,000 to 100,000 jobs a year and they're pretty diverse. One of the advantages we have is that we are not tied to any particular industry."
The economy has attracted new retailers to the market, while existing stores are expanding their base. Kohl's, the Wisconsin-based department store chain, plans to open 13 new stores in the metro area in 2001. Target, with its super-center concept, is relocating and repositioning a number of stores at the same time that Wal-Mart is also making an aggressive move in Atlanta with its own super-centers. Specialty stores such as Gap have expanded, along with its sister concept Old Navy.
"A driving factor that is of great importance in making Atlanta an attractive retail environment is that our demographic base is very affluent," says Uttenhove. "As a result of that, it is an extremely attractive environment for retailers. It's an educated consumer. Unemployment is less than 3%. Naturally that makes it a competitive employment market."
With metro occupancy rates reaching an estimated 94.9% and higher in some sub-markets, the demand for space has become intense.
There has also been a movement toward lifestyle centers such as Cousins Properties' The Avenue at East Cobb, which opened last year. Two more of these high-end, open-air developments are underway, with a third planned.
The outlying suburbs that surround the city have experienced major expansion. Growth has even taken off in smaller, second-tier markets including Macon, Savannah, and Warner Robins and in smaller communities such as Rome, Cartersville, and Brunswick.
"There's a lot of sharing of the wealth," says Uttenhove.
Tennessee Powered by the state's major hubs of Nashville and Memphis, development has been good in Tennessee. Average household income, which reached $45,534 in 1999, is expected to continue rising to a high of $55,750 in 2004 - slightly below the national average. Overall population growth is expected to increase 1.11%.
Like Georgia, Tennessee can best be defined by its best-known city. Nashville has set the pace with strong economic development such as that found at The Mills Corp.'s Opry Mills, the city's major new shopping and entertainment center. Since opening in May, Opry Mills recorded 3.7 million more visitors than Opryland, the site's previous venue, had attracted in the past two years.
The recent location of Dell Computers and Hewlett Packard to town has spurred employment.
"Because it's done so well, the tourists are coming from a large radius," says Liz Whiteside, vice president for retail services at the Nashville office of CB Richard Ellis. "It's a good sign for retail overall in Nashville. There are many new developments planned in outlying areas. Hendersonville is one, along with Murfreesboro."
The most notable retailer wars have resulted in casualties in the movie chain industry. Carmike recently went bankrupt, while its major competitor Regal Cinema is also ailing. "It seems to be very cannibalistic," says Whiteside. "There are too many theaters in overlapping areas."
Louisiana and Mississippi "Overall, like the rest of the country, we've been coming off the past five or six years of the hottest new development in retailing markets that we've had ever across the region," says Marty Mayers, executive vice president of Covington, La.-based Stirling Properties. "It's probably slowing down somewhat. There are still opportunities, but we're feeling some of the retailer problems."
Across the Gulf Coast region the economy is good, if not perfect. New Orleans and other areas in Louisiana have been hit hard by mergers in the oil and energy industries. On the other hand, Baton Rouge boasts vibrant growth in its chemical and construction industries. Employment has increased for the past 12 years, adding a hearty 7,700 jobs with each turn of the calendar.
With its booming casino industry, the Shreveport/Bossier area leads the state in service-sector employment.
National chains move in In retail, some of the biggest moves have been generated by the departure of long-time local grocery names to be replaced by more national chains. Locals such as Schwegmann's, Jitney Jungle/Delchamps, and Campo have all gone into bankruptcy.
"It's providing a lot of opportunities for companies like Winn Dixie, Albertson's and A&P to pick up multiple sites," says Mayers. "So there's a lot of movement in the whole food store market throughout our region, which is having a major impact on many shopping centers. We're seeing boxes and grocery-anchored centers moving in and out. There are both good and bad things happening."
The fallout in the industry has been a direct result of increased competition from super-centers operated by Target and Wal-Mart, coupled with a failure of older chains to adapt to these larger, higher volume stores, which are able to garner a much greater share of sales per square foot.
Mayers maintains that the market is "still good for good retail locations." Occupancy rates are in the upper 90s, and Stirling just finished a 270,000 sq. ft shopping center in Mandeville near New Orleans.
Sprucing up the Gulf The Mississippi retail market remains vibrant. "The Gulf Coast and Jackson are still very strong," says Mayers. "We just bought a shopping center in the Gulf Coast of Mississippi and we're doing a $2 million renovation of the oldest shopping center in Jackson."
The center in question, Westland Plaza, is an inner city facility that was the first shopping center ever built in the state during the mid-1950s.
Once a showpiece, it had declined over the years to become a haven for bingo parlors, bars and dollar stores. If it proves profitable, Stirling's spruce-up of Westland could encourage similar renovations at some of the region's other older, declining centers.
Alabama Located near the center of the state, Birmingham is not only the geographical center, but also the economic heart of Alabama, boasting fully one quarter of the state's economic activity.
"The city continues to be the dynamo of the state," says Jim Wilson, president of Montgomery, Ala.-based Jim Wilson & Associates, Inc. "With the new Honda plant now under construction, that's going to add 2,500 new jobs. You've got a lot going on because these automobile plants bring in so many subsidiary plants. They bring along all the different pieces that they put in the car as they bring smaller plants around them."
Wilson's company owns the 1.5 million sq. ft. Riverchase Galleria, the largest mall in Alabama. A new highway extension is expected to ease traffic congestion in and out of the area and will serve as a boost to retailing.
Elsewhere in the city, however, other developments are being plagued by zoning and other problems.
To the north, Huntsville has become one of the most dynamic areas in the state, with new jobs being generated by Boeing and the space industry, while state capitol Montgomery has a new lifestyle center on the drawing board slated to open in March 2002.
Wilson says retail is doing well overall, although in some areas it is still somewhat flat. "It's the same thing in Alabama that it is everywhere else," he says. "The Wal-Marts and Targets are doing fine, but I can't say the Kmarts are doing that well. The neighborhood grocery strip centers are fine, but when you get into the `C' market centers or some of the big box centers, they're not doing well. Then, when you get a really strong mall, it does well. But weaker malls get cut off by the bigger ones."
North and South Carolina The Carolinas continue to show strong economic development centered on their major urban areas. In terms of job creation, North Carolina is 10th in the United States with more than 68,000 new jobs, while South Carolina was ten places back with 47,000. The economy has been stable with good long-term prospects.
"We don't see many retailers leaving our market, and we're seeing new ones come in," says Mac Ogburn, managing partner for the Columbia, S.C., office of CB Richard Ellis. "Of course you've got shopping centers and strip centers that have the neighborhood grocery and five or six locals in it. Every once in a while you'll get a grocery that moves out, and something a little less desirable moves in, such as a lower rent tenant that's probably subleasing from the grocery store. We are seeing some different uses for places, such as when a Wal-Mart has been in its standard store and moved a super-center. Then you get all kinds of different uses for that space."
Durham, N.C., is seeing Chicago-based Urban Shopping Centers' 1.3 million sq. ft. The Streets at Southpoint are on line, while Atlanta-based CGR Advisors' 1.2 million sq. ft. SouthPark Shopping Center in Charlotte is undergoing expansion.
Retail remains stable With the exception of Winn Dixie's departure from the market, the grocery industry has also been stable. Bi Lo is upgrading and expanding its stores, while Food Lion has done little in the way of expansion.
"Kroger has opened some new stores, but it has closed stores in areas that were pretty well established," says Ogburn. "Other companies are picking up Kroger's market share."
In the drug store arena, CVS and Eckerd continue to battle for intersections, while Walgreens is moving into the market with larger stores and a somewhat different product mix.
Florida It sometimes seems that the entire nation is following the sun - all the way to Florida. With a booming population of more than 15 million and a 1.5% yearly growth rate, it is the fastest growing state in the nation. It also leads the nation in job growth with 285,000. Major cities in the Sunshine State are experiencing varying degrees of prosperity.
With rising income - up 2.7% this year - expected to hit an average of $61,832 by 2004, the state has the solid financial base needed to attract retail development as never before. The trend is toward pedestrian-oriented lifestyle centers, and mixed-use villages are replacing the once dominant power centers. Major department stores such as Lord & Taylor, Nordstrom, Neiman-Marcus and Saks Fifth Avenue are set to enter the market.
Nowhere is the good economic news more evident than in the North Florida city of Jacksonville. With an average vacancy rate of just 5.7% - less than the national average 6.4% - the demand for new development is also certain to increase.
To the south there is nothing "Mickey Mouse" about Orlando's hot economy. Powered by tourism and the convention trade - it hosted more conventions even than Atlanta - it continues to be the fastest-growing metropolitan area in Florida, and the fifth-fastest in the nation.
The city's job market grew by 6% with total employment reaching 850,000. Retail development has also been brisk and sales are running at more than 21% higher than the national average. In some cases, vacancies are below 5%.
Throughout the rest of the state activity has been brisk despite the prospects of higher interest rates and threats of overbuilding.
Across the region, business has never been better. While hints of an economic slowdown are hard to find, some developers are already preparing for the inevitable. They may not know when it will come, but they, like everyone, are enjoying the party while it lasts.