Retail space occupancy improving across region

Story by Jamie Smith
jsmith@thecitywire.com

Economists, real estate brokers and mall managers agree that the retail space occupancy rate is improving.

Local shopping malls are seeing decreasing vacancies, said Kathy Deck, director of the Center for Business and Economic Research at the Sam M. Walton College at the University of Arkansas.

According to second quarter results in 2012 for Class A retail space, Bentonville has a 16.9% vacancy rate, Fayetteville has a 9.9% vacancy rate and Rogers has an 8.4% vacancy rate.

According to the SNL Real Estate report, “Reis Inc. reported that regional mall vacancy rates in the U.S. fell to 8.7% in the third quarter, down from the 8.9% vacancy rate posted at the end of the second quarter, which could bode well for the regional mall space as a whole.”

Sometimes the new tenants are non-traditional for retail space such as classrooms or gymnastics schools, Deck said. “(The shopping center managers) can’t afford to have the space empty,” she said.

Alan Cole, CCIM Principal at Collier’s International, agreed that there has been an increase in activity among real estate vacancies.

“We’ve been seeing a resurgence in activity since 2010,” he said, adding that some discount companies were able to take advantage of vacancies caused by the recession and move into space that had previously been occupied by higher-cost tenants.

“The economy in Northwest Arkansas started improving and people were going back to work. With that, retailers started feeling better about expanding again,” Cole said. “The better spaces in the market started filling in. We’re in a point in NWA where existing space is mostly taken. As a retail broker, we’re seeing that there’s more interest than space available.”

It’s not just the Class A retail occupancy rates that are improving

“Well-located strip centers are going to do well. The larger developments are doing well,” Cole continued. “We’re starting to see development activity. There is still no speculative development in the market. Literally zero on the retail side. But we’re nearing the point where we need space to come up because retailers are looking for homes.”

One thing that must happen before development gets back into full swing is landowners will “have to be more realistic on land prices. They are still inflated,” he said.

New larger stores attract smaller stores and restaurants to come near them, he said. For example, the new Cabela’s in Rogers is a unique store that will attract a new audience. That could lead to even more interest in stores building in that area.

Cole also agreed that non-traditional uses became more prevalent during the economic downturn but that he expects that to change somewhat as the economy improves and shopping centers are able to find tenants who can afford higher rents.

David Erstine, partner at Sage Partners, said most retail centers and neighborhood centers have “single digit vacancy rates, which is strong. The market is (about) 7.9%.”

To some degree, the retail occupancy rates are deceptive because of the non-traditional uses, he said.

Companies such as Goodwill have taken over several large vacant retail spaces in Fayetteville, Bentonville and Bella Vista.

“Goodwill is absorbing a lot of space in Arkansas and Northwest Arkansas,” he said. “With the market, people are looking at ways to get a costs savings on anything they buy and Goodwill provides that.”

Other companies are taking advantage of vacancies, like Fresh Market that moved into the old Border’s Bookstore in the Pinnacle Hills Promenade.

Erstine said that much of the growth seems to be service providers and restaurants. This is partially because more people are making online purchases instead of going to brick and mortar stores to purchase dry goods.

MALL PERSPECTIVE
Real estate brokers largely do not deal with shopping malls because the companies that own those malls work with their own leasing agents. Representatives from large shopping centers in Rogers, Fort Smith and Fayetteville agree that retail occupancy is improving.

They look at their numbers in terms of occupancy, not vacancy. In those terms, the higher the number, the better.

The area mall with the lowest occupancy rate is still celebrating because business is showing noticeable improvements. Frisco Station Mall in Rogers has an estimated 80% occupancy rate, said General Manager Frank Cooper. Many of the tenants are not traditional retail stores but Frisco has found new life in leasing to nontraditional tenants who need office space.

There are several new tenants including a new hair salon, massage studio, coffee shop, real estate office, a personal gym, and an indoor skate park that offers custom maintenance and design on bikes and skateboards. Other tenants, such as Tuesday Morning, recently moved to new locations within the mall that drastically increases their floor space.

“Our philosophy that is driving new tenants is looking for national, regional and local brands and companies,” he said.

There are a large number of companies that are bringing in employees and other foot traffic that will increase the interest in the center.

“Overall we take a warm approach to people wanting to come in and open a business,” he said. “We work hand-in-hand with them.”

While much of the retail traffic has moved to the I-540 corridor, Cooper said that the Frisco Station Mall still offers a great location that has easy access.

“We provide a secure and well-maintained facility,” he said. “People can operate a business here more effectively and efficiently.”

Most other area shopping centers and malls have an estimated 90% occupancy rate or better.

“We all know that Northwest Arkansas is just popping,” said Brenda Majors, marking manager at the Promenade. 

"Our leasing agency) looks at what retail operator best fits our demographic and what’s best for the market.”

She said unique retailers are generally a good fit at Pinnacle Promenade.

When a vacancy comes up, Majors says  it’s because the retailer made the decision that it was not a good fit for them but that a new retailer is usually waiting in the wing. For example, Clark’s Shoes is going in the Cache space, she said. And Houlihan’s also just moved into the old Granite City building.

“They performed well,” Majors said of Granite City. “But the microbrewery (aspect) didn’t work for them (in a dry county).”

There are other places in the area that are under construction and will be open soon, she said.

Teresa Richards, spokesperson for the Central Mall in Fort Smith, read a verbal statement from the mall’s home office.

“In the ever-changing world of retail, developers continuously strive to meet the changing demands of their customers by keeping the retail tenant new and exciting such is the case at Central Mall at Fort Smith. Our national and local leasing teams consistently work to attract new retailers to the center to complement the tenant mix and meet the changing needs and desires of our customers,” she read. “Our consistently high occupancy levels are evidence of this commitment by Jones Lang LaSalle (the mall’s owner).

Richards said two new retailers including a shoe store and a Hallmark store are coming soon to Central Mall.

Jeff Bishop, general manager at the Northwest Arkansas Mall, said that their occupancy rate is more than 90%.

“We do have some vacant space but we’re always engaged in prospecting and finding the right folks for those vacant spaces,” he said.

How well a retailer does in one niche market may vary from how well it does in a nearby market.

For example, a retailer may have a location in Rogers and in Fayetteville and one location will outperform the other. The underperforming location will often be closed, he said. Sometimes the difference is in the shopper demographics, but sometimes there’s no known reason for the phenomenon.

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“Sometimes there’s no rhyme or reason as to why some do better in one market over the other,” he said.

One area that is tough in Fayetteville, he said, is sit-down restaurant space. The mall has an open sit-down restaurant space available.

He agreed that non-traditional uses have also helped fill some vacancies. For example, the old Malco theater in the NWA Mall is now a Gymnastics Joe’s.

“Anything that is going to drive traffic to the center,” he said. “From the retail perspective, sales volumes always drive expansion.”

The Scottsdale Center in Rogers is also seeing improved occupancy, said Tom Hopper, owner. The center is getting a new Marshall’s HomeGoods, Shoe Carnival and an Akin’s Natural Foods Store, he said. All of those should be open in 2013. Ross Dress for Less moved into a vacant spot in the last year, he said. There is one open restaurant on “restaurant row.”

“We’re continuing to talk to several folks (about moving into that space),” Hopper said.

He said he’s grateful to be in Northwest Arkansas where the economy is improving.

“We’ve got a great place to live and we need to appreciate it,” Hopper said.

 

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Comments

Cache/Promenade Mall

The five or so employees at Cache got less than two weeks' notice that the store was closing and they would become unemployed. This was after mall office personnel walked down a contractor who was measuring the space above the ceiling, the height of walls, etc on a ladder in the store. Cache employees asked what was going on, and mall employees lied and said they had no idea. Yes, they did too - they already leased that space to someone else, and the $8 an hour employees got the shaft. This story does not mention the empty cavern that is the Promenade food court. Subway is gone, and there has been no one to take the space. It's hundreds of empty tables and chairs, with Sbarro, that Chinese place and one other vendor in there. It literally echoes. Houlihan's is a great addition. So is Fresh Market.

Frisco Station

I take their word on the 80% occupancy rate, but I stepped in last week to use the UPS Store and it was like stepping into Phoenix Village Mall circa 1990. The interior of the mall is dated and at least half empty.