Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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29 May | June | 2015 CCIM.com DEVELOPMENT PI PELI N E FILLS Retailers complaining about lack of real estate options may soon have some relief as the development pipeline starts to expand. Statistically, construction remains well below historical levels. Very few new centers are being built and most of the construction that is occurring is in the form of expansions to existing centers. New completions specifi c to neigh- borhood and community centers totaled 7 million square feet in 2014, according to Reis. That volume is less than 25 percent of the development that was occurring pre-recession when annual completions reached 29.6 million sf in 2006 and 33.3 million sf in 2007. In Memphis, Tenn., the new supply that has come online during and after the recession has been about 10 to 20 percent of pre-recession levels. "We have gone through four or fi ve years of no new development taking place, while demand was building up," says Shawn Massey, CCIM, CRW, CLS, a partner at the Shopping Center Group in Memphis. However, the queue of potential projects is growing. Late 2015 and 2016 should bring some relief for Memphis area tenants with several new projects coming on line. "Prior to 2015 I would say the actual rents were not high enough to justify new construction. It is amazing how this has changed in the last few weeks," Massey says. Nationally, many metros have seen a continued focus on retailer-driven projects. Bigger retailers such as Ikea, Bass Pro Shops, Walmart, and grocers such as Trader Joe's are among those retailers who have continued to develop their own locations. Urban redevelopment and in-fi ll projects have provided another source of activity in recent years. For example, Overton Square in Memphis is a dining and entertainment project in Midtown that was recently rede- veloped after being dormant for about two decades. The area has "sprung to life" and is now 100 percent occupied with tenants such as Bar Louie and the Bayou Bar & Grill, Massey says. In March, a local developer also announced a 100,000-sf retail center as part of mixed-use development in Midtown that will include 300-plus apartment units. Central Florida is another area that is experiencing a renaissance of new development. The Crosslands is a 427,000- sf project under construction in Kissimmee, Fla. It is the largest new retail project to be built in the Orlando metro in the last fi ve years. Retailers include Havertys, Hobby Lobby, PetSmart, Ross, and Starbucks. Some stores began open- ing in fall 2014. "That is becoming a very successful project on the leasing front," says Jorge Rodriguez, CCIM, director of central Florida retail, at Colliers International in Orlando. Securing higher rents and signifi cant pre-leasing commitments to support shopping center construction does remain a challenge for many metros. However, development is slowly growing, spurred by the improving economy and strong demand for space. "My expectation is that 2015 is going to be as good as 2014, if not better," Rodriguez says. "But, I hope that we get to see some other new development in key markets, because things are getting really tight." retail chains af er the city opened the Pinnacle Bank Arena at the edge of downtown in 2013. "When we opened that arena, it really put us on the map nationally, and we started getting a lot of attention," says Robin Eschliman, CCIM, president of Eschliman Commercial Real Estate in Lincoln. T e arena also has sparked ancillary development, including restaurants and two hotels, as well as condos and apartments. In Lincoln, Chick-f l-A, Dunkin' Donuts, Slim Chickens, H&M;, Marshalls HomeGoods, and Aldi have all opened new stores in 2014 or are set to open stores this year. Many of those brands are new to the market. "We're like a lot of places. We have a very small amount of class A shopping center space or high quality corners and pad sites for new drive-thru restaurants," Eschliman says. Most of the vacan- cies are concentrated in the older class C shopping centers or areas of the city that have less attractive demographics and lower incomes. However, the increase in retail activity has helped to revive a stalled retail project located in the far southern part of Lincoln that has sat largely empty for several years. T e Wilderness Hills shopping center was built in 2009 next to a Kohl's store that was completed in 2008. Although the nearly 500,000-sf project was ill-timed with the reces- sion, the shopping center is now seeing fresh interest. A Marshalls HomeGoods store and an Aldi grocery store opened there last year, and there is more interest from retailers to lease space in that center, Eschliman notes. Af er recently hitting the 1 million mark for population, Grand Rapids also is getting more interest from national retailers new to the market such as Trader Joe's, Dave & Buster's, and West Elm. On top of that, existing chains are looking to expand their presence in the metro. "We're seeing a lot of demand for space, but unfortunately from a broker's perspective, not enough space," Denton says. As a