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A breath of fresh open air

February 28, 2017

Open-air retail development is accelerating slightly this year, in what some are calling a “measured upturn,” with a strategic emphasis on urban locations, mixed uses, parklike settings, and food and more food. A good illustration is the ongoing remake of the open-air Westfield Century City Mall. This Los Angeles landmark, introduced in 1964 as Century Square Shopping Center, is undergoing an $800 million expansion and makeover that comprises a new dining district and Eataly food hall, an eight-acre park, residences, offices and a new Nordstrom that is part of some 400,000 square feet of new retail.

“The expansions and renovations of older open-air centers that we are seeing in maturing areas today make a lot of sense, because they create better density and higher property values,” said David Palmer, executive vice president of development for the Dallas-based Weitzman Group.

The Los Angeles project adds to the modest 5 percent rise in shopping center starts being projected for this year — or 102 million square feet, up from last year’s 97 million square feet, according to Dodge Data & Analytics. By comparison, the industry saw some 380 million square feet of construction in 2007, according to Dodge chief economist Robert Murray, who says the industry “is moving into a more mature phase of expansion.”

Today’s open-air centers are bending the definition of multitenant retail, with large segments of space not occupied by shops. Dania Pointe, Kimco Realty’s 102-acre, main-street-style shopping and entertainment mecca on I-95, in Dania Beach, Fla., near Fort Lauderdale, will also be a business center and have a 300-room hotel, apartments, condos and offices. The firm has been marketing the project online as a possible corporate headquarters site. The phased, $800 million project, at the site of the old Hurricane roller coaster at Boomers Family Fun Center, will eventually encompass about 1 million square feet of space, including big-box retailers and a diversity of national and regional merchants and restaurants. The 300,000-square-foot first phase is scheduled for late this year. “Dania Pointe is a great example of a new project destined for success because of its focus on creating a destination with memorable spaces and places,” said David Duckworth, an Avison Young principal of capital markets. “If executed correctly, new and expanded open-air projects not only open up to the community, they often serve as their civic hubs and gathering places.”

Cities that seek new centers often want extra helpings of food and fun along with them, says consultant Lacy Beasley, president and COO of Birmingham, Ala.–based Retail Strategies. “The most common request we hear from municipalities is for more casual-dining restaurants, family entertainment centers and breweries,” she said. Such tenants tend to enhance the overall shopper experience, increase patron dwell time and promote return visits, and restaurants in particular remain exceedingly popular, she says. “Americans now eat out more than they buy groceries, and restaurants offer them both convenience and the experience they want,” Beasley said.

Inquiries from retail developers and owners have risen this year, according to Lori Bongiorno, a principal of Columbus, Ohio–based M&A Architects and the director of the firm’s commercial studio. “It seems like developers that haven’t done open-air mixed-use projects before are eager to do them now,” said Bongiorno, who has worked on Peninsula Town Center, in Hampton, Va.; on Watters Creek, in Allen, Texas; and on Easton Fashion District, in Columbus. “Because the projects are so massive, developers are still a little slower to pull the trigger, but there are more projects in the works.”  Many of the country’s prime open-air centers are trying to land such prominent entertainment or retail anchors as Bass Pro Shops Outdoor World, Legoland or Sea Life Aquarium, and food halls, Bongiorno says.

“Today all bets are off — whatever’s fun and unique can make sense for a center,” said Scott Kaplan, executive vice president for retail brokerage at JLL. Unlike a decade ago,  Kaplan observes, lenders and landlords are now more apt to take a chance on unique tenants with less than stellar credit, as long as their revenue streams are healthy.

In the Dallas area, the $400 million Legacy West urban village, in Plano, is set to open this month. This project will eventually contain 90 places to shop or eat, including a 55,000-square-foot, 20-vendor food hall, plus apartments, offices and a movie theater. Center leasing agent Mark Masinter told the local press that he was seeking no traditional department store anchors, because they are no longer “ difference makers” in projects. He is projecting that food-and-beverage sales at Legacy West will top $100 million yearly. Tenants at the Karahan Cos.–developed center will include a three-story restaurant-bar called Haywire, a Shake Shack, a Dean & DeLuca and a Del Frisco’s Double Eagle Steak House. 

Kimco, too, has a Texas open-air project in the works. Its 450,000-square-foot, Target-anchored Grand Parkway Marketplace, in northwest Houston, is set for completion by early next year. The opening of the nearby Tomball Tollway has prompted strong commercial growth in the corridor, including new facilities for Noble Energy and ExxonMobil, as well as hotels, major medical facilities and residences. Grand Parkway Marketplace will contain national, regional and local tenants and eight junior anchors, plus a restaurant village with a man-made lake, a fountain and a boardwalk. 

Grocery anchors in all manner of open-air centers will become even more common, according to consultant Jan Rogers Kniffen, CEO of J. Rogers Kniffen WWE. “That’s more of a reaction to the failure of department stores to continue to drive traffic, not a love of grocery,” said Kniffen. REIT operators have “become agnostic” about anchor space, he says. “There was a time when mall owners and operators only wanted department stores for anchors, but now they look for any concept that can occupy a big-box space and drive traffic.”

Organic and specialty grocery stores remain in growth mode, in part because of the enhanced health awareness among Americans that stems from rising health care costs, says Beasley. Indeed, Whole Foods, Trader Joe’s and other specialists are showing up in shopping centers that never had grocery stores before, according to JLL’s Kaplan.

In metro Orlando the growing numbers of homes and tourists have spurred plans for a 43-acre, grocery-anchored big-box center in Kissimmee, developed by Orlando-based Intram Investments. Sunrise City Plaza, on West Osceola Parkway, will contain grocer Publix, plus a Ross Dress for Less, a T.J.Maxx and some full-service and fast-casual eateries.

Horne Properties has been trying to get its Costco-anchored Okatie Crossing off the ground for nearly 10 years. This is a 280-acre development planned along U.S. 278 in Hardeeville, S.C., near Hilton Head. But Horne has been delayed as anchors wait for the developer to build connector roads that are contingent on city funding that, in a catch-22, cannot be awarded until the project is done.

Several smaller open-air projects have been approved, including a 37-acre hybrid power-lifestyle center at the 235-acre Tomoka Town Center, in Daytona Beach, Fla. North American Development Group will build a 300,000-square-foot retail center there, just east of a new, 80-store Tanger Factory Outlet. Back in Texas, San Antonio–based grocery chain HEB will anchor a 240,000-square-foot center on 34 acres along U.S. 287 in Mansfield, north of Arlington. Construction is to start by 2019. In Riverton, Utah, near Salt Lake City, CenterCal Properties is developing an 85-acre, open-air, mixed-use lifestyle center with retailers, restaurants, offices, a hotel and a luxury movie theater. 

The preferences of the Millennial generation are a big factor driving the reinvention of open-air lifestyle shopping centers as wining-and-dining hubs, according to Kniffen. “They are more interested in doing things than owning things,” he said. “And, particularly, they’re more interested in going out and having drinks and dinner with friends.”

A significant amount of open-air construction is being done in the form of additions to enclosed malls. Simon’s Sawgrass Mills, in Sunrise, Fla., one of the largest enclosed shopping centers in the country, recently enhanced its outdoor experience by bringing in a line of luxury tenants to its Colonnade Outlets expansion, which has a streetscape design. “The addition adds tremendous value and horsepower,” said Duckworth.

In a giant urban project, Westfield says it will demolish its struggling, 44-year-old, enclosed Promenade mall, in Los Angeles’ Warner Center, in favor of a massive open-air complex with retail, up to 1,500 homes, a concert venue, offices, a grocery store and hotels. This $1.5 billion project, tentatively called Promenade 2035, will be an extension of sorts of Westfield’s new open-air Village at Topanga lifestyle center. Phased construction is to begin by 2021 with a target completion date of 2035, as the tentative name suggests. The goal is to transform the property “into a community destination that allows people to live, work and play all in one area,” according to Larry Green, a Westfield senior vice president.

One thing spurring these urban retail projects is when people living in an urban core travel outside to work. Murray says development will grow into next year, but a cyclical slowdown will emerge by the year after. “We don’t have that boom-and-bust situation that was present in the past decade,” he said. “When the slowdown ultimately comes, it’s not going to be a repeat of what we experienced in 2009.”