Bulldozers and cranes are toiling around the world as developers, capitalizing on retailers’ growth, are investing in ground-up developments and redevelopments. In the U.S. alone, 47 million square feet of new retail space is reckoned to have opened this year, up 4 percent from 2014, according to Marcus & Millichap. During the recent recession, single-tenant buildings drove development activity, but multi-tenant centers are back in fashion. Marcus & Millichap says annual volume of new retail center openings will double in 2016, 2017 and 2018 as developers get more ambitious.
When it comes to the variety of projects in the pipeline, the picture could hardly be more diverse: It includes U.S. megamalls bold enough to break records for scope and scale; glimmering retail hubs for master-planned cities now under construction in China and the United Arab Emirates; hangout-friendly retail oases alongside the Brussels Canal or in view of the pyramids at Giza; and creative redevelopments of old shopping centers in places as far-flung as Bangkok, Manila and Nashville. And while international markets do vary according to divergent demographics, governments and consumer cultures, some common trends are now part of the retail mix all over the world, observers say. Chief among these is the drive to create fun and engaging places that stir people’s emotions and keep them coming back for more. “Shoppers today have more options than ever in the past,” said Richard Pesin, executive vice president of anchors, development and construction at General Growth Properties. “Given that they have limited time to go shopping, where are they going to go? The answer is: Wherever they can have the best experience — the most entertaining, the most convenient. That’s what we’re striving to achieve.”
The North American pipeline continues to be dominated by a strategy that emerged in the wake of the 2008 market collapse, namely the redevelopment of existing properties to ramp up their performance, observers say. The Minnesota market typifies the trend, says Bill Moston, director of retail development for JLL. He cites the $500 million expansion of Mall of America, in -Bloomington; the redevelopment of Minneapolis’ Ridgedale Center, which included adding Nordstrom and expanding Macy’s, among other changes; and the planned 140,000-square-foot expansion of JLL’s Rosedale Center, in Roseville.
As North American landlords reinvest in their best properties, they are also seeking to make smart use of vacant space created by retailer downsizing, Moston says. “Take that department store and reconfigure it into a village plaza,” he said. “Sprinkle in retailers, restaurants and possibly a movie theater — that’s the kind of thing we’re seeing as developers repurpose their vacant real estate.”
General Growth Properties, for one, aims to spend a total of $3.3 billion on 107 projects as part of a portfoliowide pipeline inaugurated in 2011, according to Pesin. Those plans do call for building one new mall: The 700,000-square-foot SoNo Collection, in Norwalk, Conn. Now in the entitlement phase, the mall will be anchored by Nordstrom and Bloomingdale’s and comprise about 100 shops and restaurants plus a 150-room hotel. The projected opening date is 2018. “This will be a strong new ‘A’ property,” Pesin said.
But General Growth’s primary focus -continues to be on reinvestment. The firm has about $1 billion in redevelopment projects currently underway. A prime example is the 650,000-square-foot expansion of Ala Moana Center, in Honolulu, which involved adding a 167,000-square-foot Bloomingdale’s; some new large-format retailers, restaurants and entertainment spaces; 200,000 square feet of in-line shops; and an additional 1,000 parking spaces. Ala Moana’s Nordstrom will relocate to its new 186,000-square-foot space this coming year. “We’re enhancing that property and creating a run — from Macy’s to Neiman Marcus to Bloomingdale’s to Nordstrom — that rivals that of any mall in the world,” Pesin said.
Part of the Ala Moana project involves adding residential units. “We focus on retail, but when there is an opportunity to add value to a center in terms of non-retailed use, we’ll explore and bring in a partner with the appropriate expertise and let them take the lead,” said CEO Sandeep Mathrani, on the firm’s third-quarter earnings call. General Growth has teamed up with local residential developer The MacNaughton Group to add $1 billion worth of condo space to the property.
Adding non-retail uses to top properties is another strategy many developers are pursuing. DDR, for its part, recently completed a portfolio review to look for value-added opportunities. “We identified over a dozen new expansion opportunities in several new redevelopment projects including opportunities to add multi-family, self-storage, and additional ancillary uses at a number of assets,” president and CEO David Oakes told investors on the firm’s third-quarter earnings call.
Retailers’ desire to grow their factory outlet presence continues to fuel new development. Tanger Factory Outlets opened four outlet centers totaling 1.4 million square feet during 2015. The total projected cost of these is about $388.7 million, and Tanger expects them to yield opproximately 10 percent. Tanger is currently codevloping the 355,000-square- foot Tanger Outlet Center in Columbus, Ohio, with Simon for a grand opening in the second quarter of 2016.
Westfield’s global development pipeline is also bulging. In addition to the brand new Westfield Milan megaproject, the firm is redeveloping a number of properties, including its Westfield Century City in Los Angeles. The latter’s transformation will include 422,000 square feet of additional space to house a new Nordstrom, a completely remodeled Bloomingdale’s, a new two-level Macy’s, and an Eataly food market.
Simon reports that at the close of its fiscal third quarter (ended Sept. 15), the cost of development and redevelopment projects in its portfolio totaled some
$2.4 billion. Meanwhile, construction is under way on reinvestment projects at The Galleria, in Houston; King of Prussia (Pa.) Mall; Roosevelt Field, East Garden City, N.Y.; Sawgrass Mills, Sunrise, Fla.; Stanford Shopping Center, Palo Alto, Calif.; and Woodbury Common Premium Outlets, Central Valley, N.Y. Simon is a partner in Clarksburg (Md.) Premium Outlets, a 392,000-square-foot center scheduled to open next October, and in -Designer Outlet Provence, a 269,000-square-foot center in Miramas, France, slated to open in March 2017.
CEO David Simon says he expects the firm to spend upwards of $1 billion per year annually on redevelopments through 2018. “No one is as active as we are in terms of redevelopment and new development,” Simon told investors on the firm’s eanrings call.
Though the construction of new regional malls continues to be rare, some developers are moving ahead with new mixed-use properties in urban in-fill areas, Moston notes. He cites North American Properties’ Avalon project in the Atlanta suburbs, and Steiner & Associates’ Liberty Center, development in partnership with Bucksbaum Retail Properties, in Cincinnati. Given the demand for walkable communities in thriving urban neighborhoods, however, developers are also turning older malls and shopping centers into mixed-use projects, observers say.
Atlanta-based architecture firm Cooper Carry is helping developers -transform two older Virginia malls — Landmark Mall, in Alexandria, and Ballston Mall, in Arlington — into mixed-use properties that will better serve their neighborhoods, says David Kitchens, a principal in the Cooper Carry mixed-use practice group. Landmark Mall, whose owner is The Howard Hughes Corp., opened in 1965. Howard Hughes Corp. aims to demolish the mall’s two-story central area and replace it with a mixed-use residential and retail complex. Cooper Carry’s plan calls for a traditional street grid, sidewalks, trees and as much as 300,000 square feet of retail and restaurants. Initial phases could open in 2019.
But remaking regional malls can be a logistical challenge, thanks to decades-old deals in which anchors such as Macy’s or Sears own their own real estate, Kitchens says. “Truly, what does not get talked about a lot is the amount of unwinding you have to do with the real estate agreements in order to get to a point where you can redevelop,” he said. At Landmark, Howard Hughes Corp. owns the mall, but the anchors own their buildings and even their parking lots. “The goal is to do a staged development,” Kitchens said. “You basically tear down the mall and rebuild it as an outdoor main street and residential project. After that, you begin to develop the parking lots around the department stores as you gain access to them.”
Along those same lines, the Ballston project required some negotiating on the part of landlord Forest City Enterprises. “The anchors owned the entire site, even the site the county garage is on,” Kitchens said. “Forest City could not conjure up a clear vision of what to do without first securing the purchase of the eastern Macy’s building.” Having bought out Macy’s, Forest City can now tear the building down and add retail topped with residential. Cooper Carry’s design also calls for turning the mall’s stores out to the street, restyling the facade, adding street-level dining and making various improvements to the interior architecture. Forest City aims to start demolition and reconstruction next summer, with a grand opening planned for the second quarter of 2018, Kitchens says.
In yet another example of strategic reinvestment, landlord H.G. Hill Realty Co. aims to turn a grocery-anchored center in the Nashville, Tenn., suburb of Brentwood into a mixed-use development. “H.G. Hill is a 120-year-old company, and what they have found is that some of their properties are very well located,” said Angelo A. Carusi, a principal in the Cooper Carry retail practice group. Cooper Carry designed the Hill Center Brentwood (Tenn.), now under construction and slated to open this coming year, around a central street that connects a commercial center to a public park with a plaza and restaurants. The overall development is 600,000 square feet, with about 150,000 square feet of retail and restaurants, along with structured parking. In a nod to -futuristic possibilities, H.G. Hill chose to build the parking deck in such a way that it could be converted into residential space, Carusi says. “The owner,” he said, “believes the driverless automobile could one day make the number of parking spaces now being provided obsolete.”
At Inland Real Estate, new developments remain a major driver of revenue, especially in the central and southeastern U.S. The firm is currently working with partner MAB to build the Publix-anchored Shoppes at Rainbow Landing, in Rainbow City, Ala. “Through our partnerships with established developers, our objective is to build and ultimately acquire new retail centers at better than market pricing,” said Scott Carr, chief investment officer, on the firm’s third-quarter earnings call. Inland completed four new developments totaling 437,000 square feet. Those projects added more than $4.7 million in net operating income, and represented a return on investment in excess of 8 percent, Carr says.
Meanwhile, Regency Centers continues to find new developments to put toward its goal of building $200 million worth of new centers annually. In the third quarter the firm celebrated the grand opening of its latest ground-up development, the 150,000-square-foot Persimmon Place, in Dublin, Calif. The center took only 20 months to complete and is fully leased, according to president and COO Brian Smith. The firm also purchased three acres of land adjacent to its CityLine project in Dallas for further expansion of that center.
Kimco Realty, too, says it has acquired parcels of land near its top properties for possible future expansion. The company’s redevelopment pipeline has a gross value of just over
$1.1 billion, with a total of $269 million in active redevelopment, with another
$734 million in designer entitlement and $122 million that is under review.
“The redevelopment pipeline is really one of the best uses of capital we have,” said David Henry, Kimco’s vice chairman, president and CEO. “The returns far exceed what the acquisition market has to offer today and we like to put on as many as we can. It’s really the mining process and the timing to get whatever permits you need, lighting for tenants. We’re going to just keep adding to it as we go, because things cycle off. We build them, we get them up and going, we keep trying to mine more and more.”
In Europe, the redevelopment and expansion of existing centers is the primary growth strategy for most landlords. British Land, for example, is upgrading its Meadowhall center in Sheffield, England, to accommodate new, double-heights storefronts.
However, some developers are entering new markets by developing new centers.
SES Spar European Shopping Centers says it will open several centers across Europe over the next few years. These include a regional center in Bolzano, capital city of the South Tyrol province of Italy; a hypermarket-anchored project in the Siska district of Slovenia’s capital; a “managed shopping street” in Vienna’s Seestadt (urban lakeside) local shopping area, in a joint venture with the Austrian capital city; and a new neighborhood called Seestadt Bregenz, in Vorarlberg, Austria, in a venture with Prisma Development.
U.K. landlord Intu Properties will spend $750 million to build retail projects in Spain over the next five to seven years. The firm already has three malls in the country, and wants to take advantage of healthy consumer spending there.
After opening the 730,000-square-metre Forum Lviv, its first retail center in Ukraine, Dutch developer Multi is building its next center in Poland. The firm is spending $207 million on the 742,000-square-metre Forum Gdansk, which is adjacent to the main railway station, the Old Town and key municipal buildings. Grand opening is scheduled for 2017.
And Portugal’s Sonae Sierra announced plans to build its first mall in Colombia, a $50 million project in Cacuta. The firm is also developing the $193 million ParkLake shopping center in Bucharest, Romania; and the $123 million Shopping Centre Zenata, in Morocco.
As for SM Prime Holdings, the Philippines’ largest retail landlord is planning a major expansion of its SM Mall of Asia , in Bay City, Pasay, to include a football stadium and art gallery, said the firm’s president Hans T. Sy.
“All in all, we plan to develop four to five new malls in the Philippines each year, with our long- term goal of having 100 malls around the country,” Sy said. The company currently has 49 malls. “That sounds like an impossible dream,” Sy added, “but we know we will be able to achieve this.”