Raleigh-Durham
Demographic Overview
Population: 1.2 million
Projected Population Growth Rate, 2001-2007: 12.73%
Median Household Income: $45,736
Unemployment Rate: 4.8%
Increase in HH income, 2001-2002: 4.4%
Average Home Price 2002: $175,000
Increase in Average Home Price Over 2001: 2.1%
Retail Overview
Total GLA: 30 million sq. ft.
Number of Regional Malls in Market: 6
Retail Vacancy Level February 2003: 6.5%
Price per Development Acre: $175,000-$785,000
Average Rent per Sq. Ft. Downtown: $12
Average Rent per Sq. Ft. Neighborhood Centers: $13.50
Average Rent per Sq. Ft. Power Centers: $18
Average Rent per Sq. Ft. Regional Malls: $29
Sources: Sperry Van Ness, NAI Carolantic, Economy.com
North Carolina's Research Triangle is known as the Retail Triangle among real estate investors. And there's good reason for it.
“Retail is the one silver lining in an otherwise depressed real estate market,” says Sperry Van Ness investment advisor Jerry Lyons. Despite the delivery of more than 2 million square feet of new space in 2002, the Triangle's retail vacancy rate hovers at 6.5 percent, driven mainly by the razing of several ailing properties. Compare that to the office sector's 17.5 percent vacancy rate and industrial's 17 percent, and it's easy to see that retail properties are propping up the market during the current economic downturn.
Despite what office see-throughs may indicate, the retail market reflects healthy job and population growth for the Raleigh-Durham area, says Alex Dmyterko, president of Crosland. Charlotte-based Crosland is developing its first project in the Triangle — a 450,000-square-foot power center called Poyner Place, built to accommodate the market's first SuperTarget.
Dmyterko says Triangle unemployment is currently about 4.8 percent, compared to the national average of 5.7 percent, and 2,000 new jobs were created between November 2001 and November 2002. Job growth for 2003 is expected to be 1.3 percent. That rate translates into an additional 9,000 new jobs.
That's doubly impressive, considering the region's continuing reliance on technology, which suffered a bust in 2001. High-tech venture capital investments in the region plummeted by 66 percent from $1.8 billion to $616 million between 2000 and 2001. Current technology employment growth is not in the volatile dot-com sector, but in the more stable computer database and systems management services businesses. Other Triangle growth industries include healthcare and financial services, providing an increasingly upscale and well educated consumer base for expanding retailers.
Despite the market's six regional malls, consumers are still underserved, developers and brokers say. “The Raleigh-Durham retail inventory stands at about 30 million leaseable square feet,” Lyons says. “We absorbed about 8 percent in 2002, which is about 2 million square feet.” Asking rents are up 4 percent since mid-2002. Brokerage firm NAI Carolantic reports rents at $12 per square foot for downtown retail, $13.50 for neighborhood centers, $18 for power centers and $29 for regional malls. These rents are cheaper than those found in such similar-sized markets as Salt Lake City or Greenville, S.C., where mall space goes for $49 and $56 per square foot, respectively.
Most of the market's new retail space is of the regional mall variety. In a “when it rains, it pours” twist, the region, which hadn't had a new mall in 20 years, saw two new centers open within 6 months of each other, both sporting trend-setting hybrid formats.
The first to debut was Rouse's $220 million, 1.3 million-square-foot Streets at Southpoint in March 2002. The crescent-shaped mall is anchored by Nordstrom, Belk and Hecht's, as well as Sears and JCPenney, and includes an open-air lifestyle component called Main Street.
The Richard E. Jacobs Group's 1.2 million-square-foot Triangle Town Center opened in August of last year. The center, which also features an open-air lifestyle component called Triangle Town Commons, is anchored by Dillard's, Hecht's, Belk and Sears. A Saks Fifth Avenue anchor, the first in North Carolina, will open in fall 2004.
Both new malls are performing close to plan, despite a rocky holiday season marred by a disruptive 10-day ice storm that hit right after Thanksgiving. Triangle Town Center General Manager Michael Robbins says 2003 is off to a good start, with the mall's Sears and Belk anchors reporting not only growing sales, but overall market share gains as well. In a vote of confidence concerning Triangle Town Center's future success, Crosland located Poyner Place adjacent to it, drawing from its traffic.
As for Streets of Southpoint, the city of Durham reported a 10 percent increase in year-over-year retail sales after the center's opening.
Though managers of other hybrid malls across the United States are seeing slow progress in leasing their outdoor components, the Triangle's new malls are trying to buck the trend. Southpoint's Main Street is populated by the likes of Pottery Bran and Apple Computer. Triangle Town Commons, however, is still a work in progress, Robbins says. “We consider our Commons area to be a second phase of the project,” Robbins explains. The Commons is built but is leasing up and opening incrementally, consequently, and the Richard E. Jacobs Group is not yet calculating its occupancy rate. Two local restaurants and a 75,000-square-foot Dick's Sporting Goods are among the Commons tenants to open throughout 2003 and 2004. Triangle Town Center, meanwhile, is 92 percent leased.
Recycling programs
While the two new malls compete on a regional level, they are located at opposite sides of the Triangle, with Southpoint pulling mainly from the Durham submarket. Triangle Town Center has proven attractive to Raleigh residents primarily. Both benefited from the demise of neighboring malls that are being bulldozed for redevelopment.
Southpoint lured Belk and JCPenney away from 27-year-old South Square Mall, now closed for redevelopment by owner Faison & Associates of Charlotte. Scheduled for completion next year, the new South Square will be a power center anchored by Target and Sam's Club.
Triangle Town Center stole Dillard's from Raleigh's oldest enclosed mall — nearby North Hills — triggering its closing. Now, a planned $200 million redevelopment of the mall by locally-based Kane Realty Corporation is under way.
Kane acquired the mall in 2001 after purchasing North Hills Plaza, a 14-acre shopping center across the street, in 1999. John Kane, president of the company, says the mall was “in a state of demise” when it reached his hands. He is now redeveloping the 31-acre North Hills property to include 600,000 square feet of retail, 100,000 square feet of office space and a 150-room hotel. All but the mall's 170,000-square-foot JCPenney anchor, which was renovated in 2001, will be demolished.
Kane says that the new North Hills will include upscale local retailers and regional merchants to set itself apart from new entrants Triangle Town Center and Streets at Southpoint. “Quite frankly,” he says, “we feel like it's important for us to differentiate ourselves from the malls with their national tenants.” In order to drive volume, North Hills will also look to Target for help. The 140,000-square-foot Target will be located beneath a Marquis Cinemas and accessed separately from the rest of the more tony shopping center. The complex is scheduled for completion in fall 2004.
Kane is also redeveloping the old North Hills Plaza, which has been renamed The Lassiter at North Hills. Also mixed use, it will comprise 370 condominium units and 120,000 square feet of retail anchored by a Harris Teeter supermarket.
In a similar vein, expansion of grocers, deep discounters, home improvement and drugstores is also driving power center and neighborhood center growth, says Crosland's Dmyterko. Collett & Associates is developing White Oak Crossing, an 825,000-square-foot power center. Faison is developing Alexander Place, a 425,000-square-foot power center, and American Asset Corp. is completing Brier Creek Commons, a 750,000-square-foot power center that will include an Eastern Federal cinema. Lowes Foods opened three stores in 2002, with one more planned this year. Kroger opened three stores in 2002, with three more planned for this year, and Bi-Lo will open its first store in the market this year. Target has five stores it plans to open for 2003, while Wal-Mart will open two supercenters. BJ's, Kohl's, Lowe's and Walgreens are also expanding.
Development isn't the only retail real estate story in the Triangle. Investors are swapping properties at a rapid clip, with Kimco and Inland Retail making the most purchases. “From an investment standpoint, the retail market has been very active over the past year,” Lyons says. In fact, retail property sales more than doubled to a volume of $318 million from $145 million in 2001. Average price per square foot was $113, the highest rate of any other property type, he says. “We've seen more international money come into the market,” he also observes. “You can understand why the buyers are looking at this market given its growth and its stability.”