Courtesy of Amy Wenk and Douglas Sams
Atlanta Business Chronicle - May 26, 2017
See Full Article - http://www.bizjournals.com/atlanta/news/2017/05/26/retail-is-dying-not-i...
As developers this week head back from pitching their projects in Las Vegas, where RECon, the world’s largest retail convention, just wrapped up, they return to an Atlanta market boasting its healthiest numbers in years.
Metro Atlanta’s retail space vacancy stands at 8.5 percent, the lowest point in a decade, according to real estate services company Colliers International.
That number belies store closings and bankruptcies across the U.S. retail sector.
Atlanta is also bucking some of the trends. In urban and suburban retail districts including Midtown, Buckhead and the Central Perimeter, vacancy dropped to 7.5 percent at the end of the first quarter. That’s a big turnaround since 2012 — when those same areas had vacancy closer to 11 percent.
Rent growth is also strong, with metro Atlanta rates soaring to the highest point in 11 quarters. Over the past year, Atlanta retail landlords have seen 2.7 percent growth in effective rents, 13th best of out of 77 metro markets, according to the analyst Reis Inc.
So why does Atlanta, along with the rest of the country, feel like it is suffering a retail crisis?
The “Death of the American Mall” and “Retail Apocalypse” make alarming headlines.
Last month, executives with Atlanta’s largest retail REIT painted a rather gloomy picture. In an April 26 call with analysts, DDR Corp. CEO David Lukes said, “The challenges we face are at once undeniable and sobering — dramatic change in demand for retail space and formats, a spate of tenant bankruptcies.”
DDR is dealing with significant vacancies among its anchors and bankruptcies from retailers such as The Sports Authority, hhgregg and Golfsmith.
DDR’s experience reflects in Atlanta, much like the rest of the country, the retail narrative continues to be a story of the haves and the have-nots.
“There is kind of this disconnect where you hear retail is dying,” said Geoff Koski, president of consultant Bleakly Advisory Group. “What’s really happening is the A properties are doing well. It’s the B, C and D-class properties that aren’t getting invested in anymore.”
Some long-familiar names in American retail haven’t adapted, either.
“The closings of 550 Radio Shacks, 400 Payless Shoe Sources or 108 Kmarts make good headlines in a ‘Look at the numbers!’ kind of way,” said Robert Fransen, partner with Coro Realty Advisors LLC. “That view, however, ignores that those stores had been dying a slow death for years.”
Coro remains bullish on urban neighborhoods. Take Buckhead, where it’s converting an aging suburban shopping center into a denser, mixed-use development with a new hotel. In Midtown, it just paid $47 million, or more than $520 a square foot, for prime retail space on Peachtree Street, a short walk from MARTA, the Fox Theatre and Technology Square.
Most retail experts agree retail isn’t dying — it’s evolving.
“When customers visit a store or shopping center, they want more of an experience than they used to,” Fransen said. “That is why amenities and restaurants have become so important in retail. In a robust economy, people are willing to pay a premium for a retail experience. They want to be entertained.”
Look at the Atlanta projects developers have embarked on over the past five years. Not one enclosed mall has been built. Instead, most new retail space is attached to resort-like mixed-use projects.
“Avalon is bursting at the seams while nearby power centers are struggling,” Fransen said. “The former provides an ‘experience’ and ‘energy’ while the latter provides low-cost shoes and picture frames. Where would you rather spend a Saturday afternoon?”
Many people spend their weekends on the Beltline. And Beltline projects such as Ponce City Market are now achieving $1,000 in sales per square foot, comparable to Buckhead’s Lenox Square. Ponce City Market is home to traditional mall retailers, such as Williams-Sonoma.
Alpharetta’s Avalon development, which just doubled in size, lured its Apple store from the nearby North Point Mall.
And, more retail projects are becoming entertainment districts. Take The Battery at SunTrust Park next to the Atlanta Braves’ new Cobb County stadium. It includes a Terrapin brewery and a host of restaurants and bars, including a new steakhouse from Chef Linton Hopkins.
“I grieve when I see the press skim the surface of what’s going on in retail and predict doom and gloom — that’s not the story,” said Cheri Morris, president of Morris & Fellows, the retail partner for the $85 million next phase of Alpharetta City Center. The project is bringing 105,000 square feet of restaurants and retail to downtown Alpharetta, including Highland Bakery and several locally-owned boutiques.
“We’ve got a changing consumer,” Morris said. “You’ve got to be fresh.”
Shoppers today, she said, want an experience-rich atmosphere with great architecture and greenspace. “We are now creating a place.”
A common misconception is how severely the rise of e-commerce sales is affecting bricks-and-mortar retail. In first-quarter 2017, e-commerce sales represented just 8.5 percent of total retail sales, according to data from the U.S. Census Bureau. That number is growing by about 15 percent per year. The most successful retailers are able to maximize both online and in-store experiences. That’s why you see Internet giant Amazon now opening physical stores.
Moving forward, though, it’s unclear how metro Atlanta’s retail landscape will fare. Some retail experts expressed concern about its future, especially if there’s an economic downturn.
Consider that retail development is at an eight-year high in 2017, according to a second-quarter report from brokerage Marcus & Millichap. The Atlanta office says there is 3.3 million square feet of retail in about 50 projects on track for completion this year.
“Atlanta is a town where we always overbuild,” said Chris Carter, who founded Vantage Realty Partners with Gene Rice in 2007. Vantage’s projects include partnering with North American Properties on an $80 million project with apartments, street-level retail and chef-driven restaurants along the Atlanta Beltline’s Eastside Trail. “We are eight years into a bull market. A lot of people are spreading themselves thin and signing leases with a short-term mentality... I think there could be a world of hurt in the next three or four years.”