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Powering up: Retailers hungry for space fuel growth of power and lifestyle centers

By Nancy Cohen

Expansion, such as that at Wrentham (Mass.) Village Premium Outlets, characterizes the New England market.

Imagine the crags of Maine’s coastline and you can imagine the retail real estate market throughout New England: There’s not much open space, but it’s still possible to find a toehold. And retailers, scrambling to do just that, are fueling development, primarily of power centers and community centers in secondary markets.

“The key thing driving the market is continued big-box penetration, with a two- or three-box development here, there and everywhere,” said Kenneth Hecht, senior vice president and partner, CB Richard Ellis, Boston. “Home Depot’s on a tear, Lowe’s is entering the market and now Kohl’s is in Connecticut.”

Two other key players are Target, expanding for the first time into New England, and Wal-Mart, which is reconfiguring or expanding into its Super Wal-Mart concept, said Bryan W. Anderson, principal, Atlantic Retail Properties, Waltham, Mass., a retail real estate brokerage.

To a degree, they are seizing on the opportunities left in the wake of the retail fallout of the late 1990s. The liquidation of Caldor in 1999 and Lechmere in 1997, for example, and the disposition of excess Sports Authority stores have brought down many of New England’s historic “no vacancy” signs. Yet in major markets space remains hard to come by, spurring development in the region’s second-tier markets, Anderson said. “The big boxes are creating new markets: One opens, and the junior anchors follow.”

What’s luring retailers over the real estate hurdles is a strong marketplace. While no single characterization applies to the large and diverse region — encompassing Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine — industry experts agree that even those areas slowest to rebound have now recovered from the economic downturn of the early and mid-1990s. They describe New England overall as mature, yet economically robust, with low unemployment and increasing affluence.

Room for expansion

“There isn’t population growth — there’s not a lot of expanses of land to build thousands of homes — but there is good income growth, especially in Massachusetts and southern New Hampshire,” said Tom DeSimone, executive vice president of S.R. Weiner and Associates, the Chestnut Hill, Mass., development firm. “It’s a well-educated, attractive area.”

The surging growth of the Massachusetts counterpart to Silicon Valley continues to drive the economy, added Hecht. “The furnace is blasting in the Boston metro area,” he said. “The jobs are there, there’s ridiculous wealth, housing is going for crazy money, and companies are growing like weeds. And it all ripples through retail. Retail sales are up 4% to 5% a year, even with the population growing just 0.5% a year — that means people are spending real money.”

Demand is great elsewhere in New England, too. Barry Rodenstein, principal at Trammell Crow Co.’s New England Retail Services Group, Boston, called central Connecticut second in the region only to greater Boston in terms of retail concentration. “It’s virtually 100% leased, and many tenants are not here yet,” he said. “It’s a fairly affluent population, and there’s demand for high-end retail and for big boxes, too.”

Trammell Crow is working on three projects in the Manchester, Conn., area that are owned by Manchester I-84 Associates. The first to open will be Northern Hills, slated for October with Lowe’s, Target and two 6,000-square-foot outparcels. Now under development are the 100,000-square-foot Crossroads at Buckland Hills, to be occupied by three or four tenants, and Evergreen Walk, a 1.3 million-square-foot, mixed-use project in South Windsor. Its retail component will be a 400,000- to 700,000-square-foot, open-air lifestyle center. The company expects to break ground on Phase I in spring 2001.

But despite the promise it holds for retailers and developers, New England continues to present real obstacles, Rodenstein pointed out. “In general, permitting is difficult in New England, and it’s hard to find large, developable parcels.”

“It’s a bit harder to build, and there’s an older road network that can make it more difficult to find the right location,” agreed DeSimone of S.R. Weiner. Notwithstanding those challenges, his company, one of the most active developers in the region, now has some 4 million to 5 million square feet under development or redevelopment.

In May the company received long-awaited approval to build a 600,000-square-foot open-air center, The Crossing at Smithfield (R.I.). One side of the project will be lined with big-box stores, including The Home Depot, Target, Old Navy, Gap, GapKids, Staples and Linens ‘n Things; the other side will feature a variety of smaller, lifestyle retailers. The company expects to break ground this summer, some 10 years after its initial involvement with the site, and to open by the end of 2001.

S.R. Weiner also is building the final 400,000-square-foot phase of The Marketplace at Augusta (Maine), doubling the lifestyle center’s size and varying the tenant mix. “We’re working with smaller tenants to give it a gentler feel,” DeSimone said. “There’s a tremendous demand for apparel that’s underserved in the market, that and home furnishings.” Gap, Old Navy and Linens ‘n Things are among those joining a newly expanded Wal-Mart supercenter, a Home Depot that opened last year, Sam’s Wholesale Club, a 10-screen Hoyts Theaters, Barnes & Noble, Olive Garden and Staples. The project should be finished by year’s end.

In addition, the firm broke ground in May on two projects: a 225,000-square-foot center in Biddeford, Maine, to be anchored by The Home Depot and Target; and Lisbon (Conn.) Landing, a 600,000-square-foot center featuring The Home Depot, Wal-Mart, Old Navy and Linens ‘n Things. In the permitting stages are a 600,000-square-foot lifestyle center in Millbury, Mass., and a 300,000-square-foot lifestyle center in Ellsworth, Maine. And soon to open in Sturbridge, Mass., is The Center at Hobbs Brook, a 330,000-square-foot project with Wal-Mart, Super Stop & Shop, Old Navy, Gap, GapKids, Marshalls and Linens ‘n Things.

“Tenants are driving the activity,” DeSimone said. “All of these are already here, for the most part, but are trying to capitalize on a very good customer market.”

Still, like the stereotypical flinty New Englander — or like any mature market — the region can be resistant to outsiders and reluctant to change. One of the challenges of developing in the area is to work closely with the community to overcome opposition and achieve consensus, according to R. Michael Goman, president and COO of Konover & Associates, West Hartford, Conn.

“In every community, we face people who oppose development, and we have no problem answering their concerns,” he said. “It’s important to support the community’s efforts regarding land use, environmental issues and historic preservation. We must demonstrate that we’re not their adversary, that we have the same goal: to make the community a better place. But the amount of time, effort and money spent on it today vs. 10 years ago is a phenomenal increase.”

Yet the effort pays off, said Goman, whose company plans to break ground this year and next on 2.52 million square feet in New England, primarily power and community centers. Soliciting local input from the get-go eases the approval process and improves the ultimate project. “We tell them what we’re thinking about, instead of presenting something wrapped up in a bow,” he said. “If we have their input early on, we usually can include it.” Collaboration also betters the chances of getting the next project done, he added. “I want to finish a project in one town, go to the next, and tell them to call the first town to see how we are to work with.”

Battle in New Haven

Opposition has long dogged the development of one of the largest and highest-profile projects planned for New England, the 1.3 million-square-foot Galleria at Long Wharf, in New Haven, Conn. Although its developers, New England Development of Newton, Mass., and Fusco Development Corp. of New Haven, target a 2002 opening, the project’s fate remains uncertain in the face of protracted legal battles led by rival Westfield America, which owns four malls in Connecticut. When and if it’s built, the three-level super-regional mall will rise at the intersection of two interstate highways and be anchored by Nordstrom, Macy’s, Filene’s and Lord & Taylor.

Another large undertaking — a 6 million-square-foot, mixed-use project — is being attempted by a company that’s new to shopping malls, Universal Properties Group, a West Warwick, R.I., construction firm. Its Centre of New England, being built on 480 acres in Coventry, R.I., is scheduled for completion by 2004. Plans include a 1.4 million-square-foot enclosed mall, 500,000 square feet of entertainment, 2.5 million of office and industrial space and a hotel. The mall’s groundbreaking is scheduled for late summer, with Phase I to open next year. Already operating on site are BJ’s Wholesale Club, Cracker Barrel and Wendy’s restaurants, and a gas station, as well as a number of businesses in the commercial section of the project.

“It will be the only center in New England of this size and stature, and we hope for it to be an attraction,” said Lori Marchetti, manager of commercial leasing and marketing for Universal.

More typical of the activity in the region are redevelopments, such as the two that the Flatley Co., Braintree, Mass., has under way. Its enclosed Village Mall in Canton, Mass., will reopen this year as the Village Shoppes, a 300,000-square-foot, open-air lifestyle center. New tenants include Gap, GapKids, a health and fitness center, GNC, Hallmark Creations, Shaws Supermarket and an expanded Marshalls. The company’s Dedham (Mass.) Mall, a 500,000-square-foot regional mall/power center, will by the end of this year tout new facades and signage as well as a repositioned tenant mix.

Expansion also characterizes current projects in the region. At Wrentham (Mass.) Village Premium Outlets, another 40 stores and 126,000 square feet will open this fall, bringing the project’s total to 170 stores and 600,000 square feet. Chelsea GCA Realty, the Roseland, N.J., real estate investment trust that owns and operates outlet centers, opened Wrentham Village just three years ago. “The center has been well-received, and this gives us an opportunity to grow,” said Michele Rothstein, vice president of marketing at Chelsea.

While certain pockets of New England remain unpicked, others are already too densely served, some developers say. “New England is definitely saturated with retail,” said Ellen Lee, partner at Finard & Co., the Burlington, Mass., management and brokerage firm. “We’re adding 10,000 square feet here and there. There are a few windows of opportunity.” In one of those, Amesbury, Mass., Finard broke ground last October for a 100,000-square-foot strip center to be anchored by Stop & Shop.

“The market is very competitive and somewhat overstored,” agreed Michael Cohen, executive vice president, DLC Management Corp., Tarrytown, N.Y. DLC owns and operates regional and small centers and is redeveloping the 250,000-square-foot Orange (Conn.) Promenade on Route 1. One of the challenging goals there is to re-lease a 113,000-square-foot space recently vacated by Sears, Cohen said. “You’re hard-pressed to drive along Route 1 and figure out who’s not there — that’s my problem.”

A shortage of new retail players may signal a shift from market entry and expansion to market repositioning, experts say. “The total square footage might stay the same, but better sites and locations come up,” said CB Richard Ellis’s Hecht.