Southeast Retail: A Mixed Bag

New Starts May Slow but Sector Still Strong for ‘08

By Deb Wood

Retail traditionally follows rooftops, and with the residential market stagnant, some analysts expect a decrease in retail construction later this year. Even so, Southeast construction firms are still going strong in this healthy niche.

advertisement

“We have not seen a slowdown,” says Bob Lipscomb, president of Williams Co. of Orlando, which builds stores for big-box retailers. “Our retail load is about the same as it has been the last two or three years. Housing may have an effect in the long term. But big retailers understand there will be ebbs and flows in the market, and the big guys have enough capital to keep going.”

Williams recently completed a $28 million, 310,000-sq-ft IKEA store in Orlando near the Mall at Millenia. The retailer plans a second Florida location in Tampa, projected to open in 2009.

“We don’t see the big retailers slowing down,” Lipscomb says.

Jeff Fuqua, president of the Sembler Co., a major shopping center developer based in St. Petersburg, Fla., adds that the big-box retailers it typically works with are opening the same number of stores as they have in the past five years.

“They are going full bore meeting store counts,” Fuqua says. “However, they are being more careful about sites. In the past they would select a green area and expect the people to catch up. Now they can’t count on new growth.”

Dale E. Scott, senior vice president of SIKON Construction Corp. of Deerfield Beach, Fla., says he has not seen a downturn in new retail projects, but he predicts one will occur, even though big-box retailers such as Target continue pushing into Florida. SIKON has nine Target projects under way and two Kohl’s department stores.

“We are going into 2008 with a strong backlog of work, but as I look down the road in 2008, there will be a little slowdown of opportunities,” Scott says. However, “projects that are taking longer to plan will be coming online.”

Although the jobs may take more time to pass through permitting and design, he does not expect them to evaporate because the retailers have committed to them and obtained funding.

Steve Rivers, senior vice president and general manager of Hardin Construction Co. in Orlando, agrees that retail is still fairly strong in the Florida market, but he adds, “In the Southeast, it appears to be showing some signs of slowing, following the slowdown in residential.” He says the tourist economy helps Florida, especially Orlando, and it is taking retailers time to catch up with the housing boom that occurred during the past two to three years.

“We’re hoping with the slowdown we are in with residential construction that retail will continue to plod along at a modest pace until residential picks up again,” Rivers says. “We’re thinking that is maybe a year away.”

Hardin recently completed the $78 million, 550,000-sq-ft Winter Garden Village at Fowler Grove for Sembler and is working on a $15 million, 115,000-sq-ft expansion at Orlando Premium Outlets for Chelsea Property Group of Roseland, N.J., a division of Simon Property Group of Indianapolis.

Much of the retail space coming online is included in mixed-use developments, such as SIKON’s The Promenade at Lyons in Coconut Creek, Fla., and Williams’ SuperTarget SoDo in Orlando.

“Mixed-use and open-air centers the live-work-play concept is what everyone is looking at,” Scott says. “In some cases, to make it work economically, you need office or residential.”

Analysis

McGraw-Hill Construction Research & Analytics predicts a 9% decrease in 2008 store and shopping center construction starts in Florida, Georgia and the Carolinas, down to $4.8 billion from the $5.3 billion estimated for 2007. Even so, it is predicted to be the second best year in the last five years.

Analyst Jennifer Coskren expects Florida’s retail starts to drop the most, 11%, followed by South Carolina at 10%, Georgia at 8% and North Carolina just 2%. Coskren cites retails’ close ties to new housing development. In addition, a slower economic pace will affect retailers.

National International Council of Shopping Center research indicates a continual slow decline in shopping center square footage growth since a peak in 2004, says Jean Lambert, manager of global research for ICSC. 

John M. Crossman, president of Crossman & Co., an Orlando commercial real estate firm, agrees with Rivers that the tourist market bolsters retail in Central Florida, saying that people on vacation spend five times as much as a regular customer. He adds that the overall economy remains good, with people continuing to shop.

David Marks, president of Marketplace Advisors, a Winter Park, Fla., firm that tracks the retail industry, reports that retail employment remained nearly stable from November 2006 through November 2007, with a 0.3% gain, something he attributes to the housing market. Employment at building material and garden supply stores decreased 5.6%, with a loss of 5,100 jobs.

“Areas projected to see new housing have slowed, and that will affect retailers’ moves,” Marks says. “Stores that are opening now were slated to open before this [housing downturn] occurred.”

Consolidation in the department store submarket also affected the industry, Marks adds.

“We’re still seeing Wal-Mart Supercenters and SuperTargets,” he says. “Retailers are looking at specific markets. If they feel one is underserved, they will still open a store.”

Georgia

In Atlanta, Balfour Beatty Construction of Atlanta is providing a $20 million update at The Prado for Sembler. The job, which will wrap up this fall, includes site and infrastructure work and refacing of the existing shopping center. Home Depot, Target, Staples and Circuit City will anchor the updated 460,000-sq-ft center.

Balfour Beatty also is building on the first $130 million phase of The Streets of Buckhead for Ben Carter Properties of Atlanta. The project includes 500,000 sq ft of retail and restaurant space and is set to open in 2009.

Also in Buckhead, Sembler is developing a $400 million, 54-acre, mixed-use TOWN/Brookhaven development with 600,000 sq ft of retail. Sembler has several other Georgia projects under construction, including the 800,000-sq-ft Canton Marketplace, Deerfield Place in Milton and the Cumming Town Center in Cumming.

Holder Construction Co. of Atlanta continues work on the $130 million, 10-story, 860,600-sq-ft AmericasMart Building Two West Wing project, an addition to Atlanta’s AmericasMart. Retail buyers visit the center to look at home furnishings, clothing and other products.

Florida

Williams is building the $35 million Posner Commons, a 430,000-sq-ft power center in Davenport, Fla., for Trammell Crow Co. of Orlando. The former Boardwalk and Baseball theme park site sits at State Road 27 and Interstate 4. Target will anchor the center, which will include a Best Buy and Dick’s Sporting Goods. 

The open site, near Orlando’s attraction area, is a bit of an anomaly in Florida. Williams Co.’s Lipscomb says few large greenfield parcels exist in the state, with most projects on infill sites.

For instance, the company is building the $28 million SuperTarget SoDo, south of downtown Orlando, as part of a mixed-use development replacing an aging strip mall. Two levels of parking will top the 180,000-sq-ft, two-level SuperTarget. The lower-level parking deck serves as the roof membrane, covering approximately 75% of the sales space.

“It’s interesting for Target to spend the money they are on that store in a market like Orlando,” Lipscomb says. “Usually we see a specialty store for them, higher than your prototypical store, in a bigger market. They have a lot of confidence in the Orlando market.”

North American Properties of Minneapolis and Kimco Realty Corp. of New Hyde Park, N.Y., are developing retail space adjacent to the Target. The 22-acre SoDo infill development also includes 300 apartments and 75,000 sq ft of office space. Hoar Construction of Orlando expects to complete the $32 million retail and office component in September.

Williams Co. also is building Rialto for the Wilder Co. of Boston. The $15 million, 103,683-sq-ft project in South Orlando includes a three-level, cast-in-place parking deck for 230 cars and a 90,000-sq-ft, stepped, three-story main building. The project sits on a compact 12-acre site. It is scheduled for completion in July. 

Simon Property Group is converting a former department store at the Florida Mall in Orlando into an outdoor lifestyle center to broaden its appeal to customers, says John Albright, senior vice president of development. The $30 million, 140,000-sq-ft retail village will open later in 2008. The mall developer has similar projects under way at Town Center at Boca Raton, Fla., and Treasure Coast Square in Jenson Beach, Fla.

“Regional closed malls are still a powerhouse in retail, but we’ve found lifestyle centers are in vogue now,” says Les Morris, spokesperson for Simon. “The mall has been a retail hub for generations. We are attaching a lifestyle open center to it to get the best of both worlds.”

SIKON began sitework in January on the $50 million Current at Lee Vista in Orlando, an 85-acre retail development, with a SuperTarget, Best Buy and other retailers. 

Sustainable Shopping Centers

Scott reports that more retail developers are embracing sustainable design. SIKON is working on the $50 million, 250,000-sq-ft Promenade at Lyons. The 13-building retail center aims for LEED core and shell certification. 

“We’re finding as tenants are getting involved, they are grabbing a hold of [LEED], too,” Scott says. “A lot of tenants don’t want to be the one guy that’s not green. They are getting peer pressure to join in.”

Flagler Development Group of Coral Gables is building a 400,000-sq-ft, LEED gold-certified Chrysler dealership for Tamiami Automotive Group on an 18-acre, former Superfund site in Miami.

Useful Sources:
The Prado
http://www.sembler.com/current_projects.php?state=GA

Streets of buckhead
http://www.streetsofbuckhead.com/  

SoDo
http://www.sodo-orlando.com/shop/

Current at Lee Vista
http://www.katzassociates.com/

Winter Garden Village at Fowler Grove
http://www.wintergardenvillage.com