In the next couple of weeks the City will be putting an Request For Qualifications (RFQ) out seeking a development partner to redevelop the downtown block bordered by Erie, Depeyster, Haymaker and Water Street (where the Hardware Store is located) in downtown Kent. Once we get a partner on-board we’ll start looking at what can be done in the block. With all the articles talking about the demise of malls, and the hot beds of university downtowns, we’re expecting a fair amount of interest in our solicitation. I suspect whatever developer we end up with will talk about LifeStyle Centers, so I’ve gone ahead and shared a copy of an article from a retail trade industry magazine (CoStar Advisor) that offers good insight into why Lifestyle Centers are so popular and what we might expect to be talking about in the next couple of months here in Kent.
Lifestyle Centers: Retail’s Hottest Trend
Smaller, Open-Air Format Demonstrating Strong Appeal Among Shoppers and Retailers Alike Realty’s Weilminster said. “Even with the extra design elements and higher quality construction materials, lifestyle centers offer significantly lower CAM (common area maintenance) and insurance costs than a regional mall. That’s a direct financial benefit to the retailer’s bottom line.”
While the regional mall segment continues to address the challenges posed by struggling department stores and market saturation, the smaller, more flexible lifestyle center format is demonstrating strong appeal among shoppers and retailers alike.
Considered the next stage in the evolution of the upscale/specialty retail concept, lifestyle centers typically offer open-air, amenity-rich shopping with extensive landscaping, outdoor music playing and convenient parking located close to the stores. They target affluent neighborhoods and include upscale specialty retail, trendy restaurants and theatres or other entertainment features.
With a gross leasing area (GLA) ranging between 300,000 and 500,000 square feet, lifestyle centers typically do not include traditional retail anchor stores, and they differ from town center developments in offering almost exclusively retail/entertainment space, while town centers often include a significant residential component.
However, the key distinguishing feature of any lifestyle center, according to Anthony Buono, managing director, retail services of CB Richard Ellis, is any open-air shopping center that features retailers typically found only in regional malls.
“As a category, the number of lifestyle centers will never be as big as neighborhood or community centers, but it is a very influential niche,” Buono noted. “They appeal to the upper income customer who is looking for a more enjoyable shopping experience than going to the mall. They may be new, but lifestyle centers have staying power.”
While the number of “true” lifestyle centers numbers less than 150 across the country, the retail store segment represents more than 10% of the planned and new centers under construction (those opening in 2005 and after), according to the latest numbers from CoStar subsidiary National Research Bureau (NRB). In contrast only three enclosed regional malls are planned to open. The growing appeal of lifestyle centers appears to be driven by several converging factors, according to industry experts.
“What lifestyle centers provide is convenience,” summed up Reza Etedali, president of Irvine, CA-based Reza Investment Group. “People don’t always want to go to a big mall, spend a lot of time parking and walking a long distance. Instead, you can drive to one of these new centers in your neighborhood, shop in the same high-quality stores you used to have to go to the mall to find, and meet your friends and neighbors for lunch at a nice place to eat.”
“I think consumers have weighed in on the issue by showing they prefer to shop closer to home,” agreed Chris Weilminster, senior vice president of leasing for Federal Realty Investment Trust based in Rockville, MD. “They want the convenience of parking close to their retail destination and in sight of the store where they want to shop. They don’t want to end up parking on the wrong side of a mall and walk 30 or 40 minutes to reach the store they’re looking for.”
In addition to drawing their preferred customer, retailers also like the fact that lifestyles centers are less expensive than renting prime space in a mall.
“Open-air construction is much less expensive to build and maintain (than an enclosed mall),” Federal Realty’s Weilminster said. “Even with the extra design elements and higher quality construction materials,
Lower operating costs and attractive shopper profiles paint a compelling picture for retailers. But what really sells retailers on lifestyle centers is sales. A recent study by the International Council of Shopping Centers (ICSC) found lifestyle center shoppers made shorter visits but spent more. Such destination shopping behavior (less browsing) is music to every retailer’s ears. The result is a sales average of $298 per square foot in lifestyle centers vs. $242 per square foot average in traditional regional malls. Higher dollars per visit, along with the lower operating costs, make lifestyle center pro formas very attractive.
Other factors behind this growth are the continuing slowdown in new regional mall construction, the search by national specialty chains for new platforms to support store growth, and a desire on the part of many consumers to combine the convenience of a strip center with the panache of upscale retailers.
As a result, major retailers that wouldn’t consider locating a store outside a mall three years ago are increasingly adding lifestyle centers as part of their overall retail strategies. A list of Top 10 Lifestyle Center Retailers in this article includes many apparel and specialty retailers that take space in both lifestyle centers and in traditional mall settings. Now we’re seeing such regional mall developers as Simon Property Group and General Growth Properties entering this space. As they do, they’re bringing previous relationships with regional mall anchors to the lifestyle center format, resulting in a blending of concepts to fit the needs of the specific markets and existing operating relationships of the developers.
“The regional mall developers are simply following their tenants into the lifestyle center space,” explained
CB Richard Ellis’ Buono. “They aren’t building new malls, and they have to generate FFO growth. That leaves two likely outcomes: buying and consolidating other mall owners; or doing something accretive to earnings, and for many that means moving into lifestyle centers.”
“We’re all in the same business now,” said Terry Brown, chairman of Columbia, SC-based Edens & Avant, one of the speakers who addressed the ICSC Conference on Open-Air Centers held earlier this year. Other speakers noted how the increasing size of some proposed lifestyle centers and plans to include traditional mall anchors are further blurring the lines between malls and lifestyle centers.
Buono said he expected the public mall REITs would acquire open-air center developers eventually. “The big players will have a lot of leverage, but I think there will always be room for independent, private developers who are more nimble than the REITs in responding to retailer trends and capable of holding their own in their local markets.” Buono cited Los Angeles-based Caruso Affiliated Holdings as an example.
“They’re the ones who built the Grove in Los Angeles,” Buono said. “That’s the future of retail. That center drew an estimated 18 million visitors in 2003, about 5 million more than Disneyland.”
As the lines between retail shopping center types continues to blur, experts expect lifestyle components to appear in future mall expansions, town centers and mixed-use developments currently under construction and planned to come. All that attention from real estate suppliers has some investors concerned about the impact on supply. There is a limit to the number of sites with the demographics necessary to support one of these centers. ICSC reports trade areas surrounding five such lifestyle centers indicate an average household income of $72,288, nearly 25% higher than the national average. Are there enough areas with such a demographic profile required to support these centers?
“More and more retailers are looking at lifestyle centers as an alternative to regional malls,” noted Federal Realty’s Weilminster. “The fact is, there simply aren’t many areas with the necessary demographics to justify building a regional mall. However, you can go into some of these smaller markets and infill locations with lifestyle centers that can draw on a 20- or 30-mile radius. That holds a lot of appeal to typical mall tenants who don’t want to be more than 50 miles away from their customers.”
“I wouldn’t say the opportunity is unlimited,” added Weilminster, “but there are lots of opportunities for retailers to go into markets that don’t necessarily have the numbers to support a mall. I think we’re seeing just at the beginning of this lifestyle trend.”
“We’re going to see some dramatic changes in the retail landscape over the next five to 10 years,” added
Reza Investment Group’s Etedali. “As the huge Baby Boom generation ages and enters the empty-nest syndrome, they’re looking for convenience and proximity to a variety of uses. We’re going to see a return to more street front retail, mixed-use urban living formats and even residential towers added to malls.”
SIDEBAR: Why Lifestyle Centers Are So Popular
Why all the attention on lifestyle centers? After all, there are less than 150 such centers nationwide, accounting for only a fraction of a percent of the total 40,800-plus U.S. shopping centers.
Is there really enough shopper demand for these types of centers? Are there enough optimum sites and “lifestyle” retailers to go into these centers being planned? These are questions industry experts and the investment community are asking.
The concept was first initiated by Poag & McEwen Lifestyle Centers in 1987 with opening of The Shops of Saddle Creek in Germantown, TN. Since that time this segment has grown exponentially, with a further anticipated growth rate of 48% in 2005 and beyond. Some older centers, previously positioned as upscale or traditional now have been repositioned as lifestyle through renovation and retenanting projects. Some regional malls also are incorporating the addition of “lifestyle wings” through expansion projects that often involve building out through space left vacant by closed anchors. It is expected more of these revitalization and expansion projects will be evident as this concept grows.
Copyright (c) 2005 CoStar Realty Information, Inc. All rights reserved.