Retail Traffic

Gulf States Emerge Through Diversification

Economic growth in Alabama, Louisiana and Mississippi stems from gambling, tourism, and oil and gas exploration.

Battered by the oil bust in the mid 1980s, then hurt by the national economic downturn shortly thereafter, Alabama, Louisiana and Mississippi have finally rebounded.

The coastal regions of these three states, which traditionally have lagged behind other areas of the country, have diversified their economies. The tourism industry has been shored upby the introduction of casino gambling, and renewed demand for oil off the Gulf Coast has oil rig, boat yards and shipyards all functioning near capacity for the highest level of demand in marine construction since the early 1980s.

The cities and towns along the Gulf Coast from Lake Charles, La., to Mobile, Ala., reported the addition of more than 50,000 jobs in 1997, according to the Southern Business and Development Journal. It has sustained better than a 3 percent annual employment growth rate since 1993, compared to the national average of 2 percent. The coastal areas of the three states that are south of Interstate 10 report job gains topping 180,000 since 1993, making it one of the fastest growth rates in the nation.

In addition, more than 1 million sq. ft. of retail space was absorbed or built between New Orleans and Mobile in the past two years with nearly all the construction space pre-leased, according to a 1997 mid-year market analysis from the University of New Orleans Real Estate Market Data Center (UNO report). Overall occupancy rates now exceed 92 percent with a base of more than 8 million sq. ft. in the tri-state area. Some of the new retailers in the area include Feet First, Home Depot and Wal-Mart.

Plans also have been announced for the construction of 1.3 million sq. ft. of new retail space, more than 280,000 sq. ft. of casino space and at least 4,000 more hotel rooms along the Gulf Coast, according to the Mississippi Gulf Coast Convention & Visitors Bureau, Gulfport. The additional square footage in all these tourist-type areas is aimed at bringing in more people, increasing retail sales and generally contributing to an already strong economy.

Louisiana Louisiana is forecast to continue slow but steady economic growth during the next two years as tourist, oil and gas, and computer software industries expand, says Timothy Ryan, business school dean at the University of New Orleans.

The state's population has grown from 4.22 million people in 1990 to 4.34 million last year, according to the U.S. Census Bureau, Washington, D.C. It is expected to top 4.42 million by the turn of the century.

Unemployment remained substantially higher last year than the national average or in other Southern states at 5.9 percent, but that number is down from 7.2 percent a year earlier, according to the Census Bureau.

"The improving employment picture is helping stem the outflow of Louisiana residents to other states," says Richard Stone, vice president of Latter & Blum/NAI in New Orleans. "This year, the state is expected to post a slight gain in net migration, which will be the first such increase in more than a decade."

Louisiana's two largest metropolitan areas will account for about half of that increase, with New Orleans picking up slightly more than 10,000 jobs and Baton Rouge adding more than 14,000 jobs, according to the UNO report.

Baton Rouge has an emerging high-technology sector, while New Orleans has built upon its strong hospitality industry. But since tourism and hotel construction expansion peaked last year in New Orleans, the city's future local real growth will have to come from oil and gas exploration, shipbuilding, medical services, international trade, petrochemical refining and technology firms.

Louisiana Gov. Mike Foster spearheaded several pieces of pro-business legislation in 1996 and 1997, including a sweeping civil litigation reform package aimed at encouraging economic growth by limiting unreasonable damage judgments and high liability premiums. These reforms have pulled Louisiana up from the fifth highest workers' compensation rate in the country to the 17th lowest in the nation, according to the Southern Business and Development Journal.

This and other initiatives has renewed economic development in Louisiana. Sparked by increases in oil and gas exploration -- whose activity last year was 8 percent ahead of 1996 -- the state's economy is growing at a rate of 4.2 percent, which is faster than the rest of the country at 3.6 percent, according to the Journal.

"Louisiana's economy has shown very impressive strength over the last year," Stone says. "And in the retail market, we have seen the strong areas get stronger."

A sure sign of growth is in construction, which also has picked up. Louisiana builders started construction on 12,900 new homes last year, which is the highest number since 1984, according to the UNO report. About one-third of that total was in metropolitan New Orleans. Construction also increased solidly in Baton Rouge, Lafayette and Shreveport.

The report also noted that non-residential construction surged nearly 30 percent in New Orleans last year on the strength of increased shopping center and office development.

Overall retail vacancy rates in the city were in the 10 percent to 11 percent range last year, up 3 percent to 4 percent from the loss of a third anchor -- Mervyn's -- at Lake Forest Plaza in east New Orleans as well as the closure of two department stores -- Woolworth's and Krauss -- on Canal Street in the central business district. Rental rates range from $6 per sq. ft. to $10 per sq. ft. for in-line mall space to $8 per sq. ft. to $14 per sq. ft. for anchors, according to the UNO report.

Since 1991, big-box retail occupancy has risen from 87.7 percent to 91.5 percent in New Orleans with the overall stock of retail shopping center area and big-box retailers now totaling 26.6 million, according to the UNO report.

During the past three years, retail absorption in the metropolitan area has averaged 353,000 sq. ft. every year for a growth rate of 1.3 percent, the UNO report states. With a 5 percent income growth rate and a 1 percent growth in population coupled with today's large retail facilities, the market will only bear one or two big, new centers or big boxes to be built and accepted each year. Both The Sports Authority and OfficeMax are new entrants into the city this past year.

Like other major metropolitan areas, New Orleans has seen a move away from regional mall development to smaller neighborhood centers as well as freestanding construction. The city also has seen a number of store closings and chains sold in recent years.

The closing last year of Mervyn's at Lake Forest Plaza follows on the heels of Dillard's leaving in late 1996 and Sears in 1992. Maison-Blanche is the only anchor still remaining at the shopping center, which is owned by Philadelphia-based Cigna Properties. At press time, Lake Forest Plaza was under contract for purchase.

Stone of Latter & Blum says he expects that Lake Forest Plaza will be redeveloped into another type of center. "I don't think it will continue to work as a regional mall," he says.

A handful of Real Superstores also were closed as a result of a number of transactions involving New Orleans-based Schwegmann's grocery chain in recent years. In June 1995, Schwegmann's purchased a 28-store chain from Canadian-based National Tea, which included Real Superstores, Canal Villere and That Stanley! stores in New Orleans. Schwegmann's was subsequently purchased last year by Kohlberg & Co. LLC, New York, which then closed some of the stores.

In another major sale, New Orleans-based K&B sold its 183-store, Gulf Coast drug chain to Rite-Aid Corp., Camp Hill, Pa.

New Orleans is not the only city in Louisiana to see some activity. Baton Rouge also is being noticed. The city has benefited in recent years from job growth in the expanding petrochemical industry, at the state capital and in the medical community as well as from increased enrollment at Louisiana State University.

"Baton Rouge has become an important market in Louisiana; it's very hot right now," says Beau Box, a broker for Latter & Blum/NAI in Baton Rouge, where 1.2 million sq. ft. Mall of Louisiana opened last fall. "A lot of activity is taking place in the southern part of the state.

The Mall of Louisiana is the largest commercial development to open in Baton Rouge in more than a decade, says Jim Wilson Jr., president of Montgomery, Ala.-based Jim Wilson & Associates. More than 65 of the mall's retailers are new to the market, including a new department store, McRae's, he says.

The mall, which opened in October, has five anchors and 160 specialty stores in 1.2 million sq. ft. of space. It is jointly owned by Jim Wilson & Associates and ERE Yarmouth, Atlanta.

Mississippi The population of Mississippi grew from some 2.5 million people in 1995 to more than 2.7 million in 1997. By the turn of the century, it is forecast to top 2.82 million, according to the Census Bureau. But day gamblers and overnight visitors to the Mississippi Gulf Coast are expected to present a larger potential retail market than the current resident population.

The Mississippi Gulf Coast has had one of the most robust employment growth rates in the South with the explosion of the gambling industry. By the end of 1998, more than 900,000 sq. ft. of casino gaming will be there, making it the third largest gaming region in the nation behind Las Vegas and Atlantic City, N.J., according to the Mississippi Gulf Coast Convention & Visitors Bureau (CVB).

Casino construction also has spurred retail development. One of the benefactors has been Baltimore-based Prime Retail, which operates a 500,000 sq. ft. outlet center in GulfPort.

At midyear 1997, rental rates for all retail property including freestanding stores on the Mississippi Gulf Coast averaged $15.74 per sq. ft., compared to $11.66 per sq. ft. in New Orleans and $8.30 per sq. ft. in Mobile, Ala., according to the UNO report.

The rate of retail space absorption on the coast accelerated to more than 519,000 sq. ft. during the first half of 1997, according to the report. All categories and nearly all geographic submarkets reported strong, positive absorption. Overall, occupancy levels are now 94.5 percent with less than 370,000 sq. ft. of vacancy in an inventory of 7.3 million sq. ft. of retail space.

Inland from the coast, in areas that do not depend on the gambling industry, Vicksburg, Meridian and Hattiesburg have diversified their economies.

CBL & Associates Properties Inc., Chattanooga, Tenn., recently developed malls for both Meridian and Hattisburg. The 725,388 sq. ft. Bonita Lakes Mall opened last fall in Meridian, and 933,000 sq. ft. Turtle Creek Mall opened in 1995 in Hattiesburg.

"Both Hattiesburg and Meridian had sales leakage to Jackson, Miss., and Birmingham, Ala.," says Eric Snyder, senior vice president and director of corporate leasing for the company. "Now those people have the ability to stay home and shop."

Alabama Census Bureau figures show that Alabama's population increased from 4 million people in 1995 to 4.3 million last year under the aegis of a strong economy driven by technology and the military.

"Montgomery is stable with gradual growth due to the expansion of the technology industry, the state government and the Air Force," says Bryan Ratliff, senior vice president of retail development for Birmingham, Ala.-based Colonial Properties Trust.

Ratliff says rents have stabilized and are rising in some areas, partially because the category-killers have completed their expansion in major markets and are now looking to somewhat smaller cities.

Northern Alabama's Huntsville, also driven by technology as well as the aerospace industry, has been getting a lot of interest from national retailers, Snyder says.

Lowe's Cos Inc., North Wilkesboro, N.C., recently announced plans to enter the market with a 150,000 sq. ft. store. It will compete against HQ Home Quarters and Home Depot, as well as local building supply stores and independent hardware stores.

Further retail interest in Huntsville is expected to heighten this year upon completion of Boeing Company's $450 million Delta IV rocket plant in nearby Decatur, Ala., which will employ some 3,000 people.

A boost to the Birmingham market may come in the form of a new Mercedes-Benz plant, which is being built in nearby Vance, Ala. It is expected to add more than 1,000 jobs to the metropolitan Birmingham market.

The latest retail news in the city is the opening of The Summit, a 500,000 sq. ft. outdoor specialty center that was developed by Birmingham-based Bayer Properties.

Mobile, in the southern part of the state, continues to depend on its coastal industries. The city's economy has been strong with oil rig and supply boat construction continuing to expand.

In the retail sector, overall occupancy levels for the city stood at 94.3 percent after the third quarter of 1997, with less than 420,000 sq. ft. of vacant space, according to the UNO report. Retail rents range from $8.50 per sq. ft. to $15 per sq. ft. for in-line space and $6 per sq. ft. to $8 per sq. ft. for anchor space.

A survey by Mobile-based Halifax Properties shows that while there was a light cumulative decline in occupied retail area in the the city early last year, more than 300,000 sq. ft. of discount, big-box retail was added during the second half of 1997, resulting in overall positive net absorption for the year.

There was a 33 percent increase in retail sales for Baldwin County and a 17.8 percent increase for Mobile County, both counties that make up the Mobile MSA, during the first half of 1997, according to the city's Chamber of Commerce. The rapid rate of employment, housing and income growth in Mobile all point to still more retail development during 1998.

"Development [in the city] is away from the bigger centers," says David D. Roberts Jr., vice president at Roberts Brothers Inc./NAI. "A lot of mall tenants are relocating to freestanding centers or strips with drugstores as anchors."

Janet Plume is a New Orleans-based freelance writer.

Alabama * The Summit, a 500,000 sq. ft. outdoor specialty center in Birmingham, opened in October. A development of Birmingham-based Bayer Properties, the center is anchored by Parisian and features a blend of national and regional tenants. Bruno's and Vincent's Market is located alongside such tenants as Old Navy Clothing Co., Bed Bath & Beyond, Harold's and Williams-Sonoma. A 16-screen, Carmike Cinemas theater with all stadium seating also is part of the center along with dining options such as Johnny Rocket's, and opening this year P.F. Chang's, Macaroni Grill, On The Border and Cahaba Tavern.

Aesthetically, the Tuscan-inspired architecture and use of varied building materials, fountains, visually interesting setbacks and grade changes give The Summit a village streetfront ambience. The center's architect was Crawford, McWilliams, Hatcher Architects Inc., Birmingham.

* Plans are in the works for Shoppes at Athens in Athens. A project of Auburn, Ala.-based Lease America, the 160,000 sq. ft. first phase is expected to be completed this fall. Tenants already announced for the center include Reading China & More, Dress Barn/Dress Barn Woman, Famous Footwear, Rack Room Shoes, Leggs Hanes Bali, Corning Revere, and Prestige Fragrance.

* McClinton & Co. Inc., Montgomery, Ala., has several projects recently completed or on the drawing board. Premiere Place Shopping Center opened last August in Prattville. The 327,304 sq. ft. center features Wal-Mart SuperCenter (opened in 1996), Belk and Goody's Family Clothing. The company also is developing Montgomery Commons, a 200,000 sq. ft. power center in Montgomery. It is scheduled to open in spring 1999. In addition, at McFarland Mall in Tuscaloosa, T.J. Maxx expanded its store, Shoe Station opened a 17,000 sq. ft. store, and Gayfers added a 10,000 sq. ft. European health spa and beauty salon to its store. In addition to these three stores, the 500,000 sq. ft. mall is anchored by Goody's Family Clothing, Books-A-Million, Michaels and a 12-screen Cobb Theatre.

Louisiana * Mall Properties Inc., New York, has several projects under way in Baton Rouge. Renovation work continues on The Mall at Cortana, a 1.5 million sq. ft. center that is anchored by Maison Blanche, JCPenney, Dillard's, Sears, Mervyn's and Service Merchandise. Last year's improvements included a new parking lot, new interior and exterior landscaping, and exterior canopy restoration. Work this year will include new ceiling treatments and interior lighting. The company also plans to develop several freestanding buildings and make road improvementsthis year on the ring road of the mall property. Renovation work also is under way at neighboring 236,000 sq. ft. Cortana Square. OfficeMax recently joined existing anchors Wal-Mart, Books-A-Million and Party City.

In addition, Mall Properties is expanding Siegen Lane Marketplace, a 400,000 sq. ft. center that features Wal-Mart, Lowe's, Sam's Club, Tinseltown Theater, Chili's Bar and Grill, Crab Shack, Wendy's, and a Courtyard by Marriott hotel. Phase II expansion calls for the addition of 75,000 sq. ft. by this fall. Wal-Mart also is planning to add approximately 45,000 sq. ft. of space to its store and become a SuperCenter in the first quarter of the year.

* The Mall of Louisiana, a 1.2 million sq. ft., two-level center in Baton Rouge, opened in October. Jointly owned by Montgomery, Ala.-based Jim Wilson & Associates and Atlanta-based ERE Yarmouth, the mall is anchored by Dillard's, JCPenney, Maison Blanche, Sears and McRae's, which is new to the area. The mall also features 160 stores, a food court, six specialty food merchants and three restaurants.

The focal point of the Mall of Loui-siana is a large center court with arched skylights that rise to a height of 75 feet. Other amenities include living room-style seating areas, children's furniture in the food court, a carousel, family restrooms, special lighting and sound systems, and customer greeter stations. Future plans include an expansion of the mall as well as the addition of a sixth department store for a total GLA of 1.45 million sq. ft.

* Battle House Outlet & Entertainment Complex, a 300,000 sq. ft., mixed-use project, is scheduled to be completed in October in Mobile. Features of the center include a multi-screen theater complex, themed restaurants, a four-story atrium, an indoor park and staging area, and an integrated hotel complex. It is managed by The CMC Group, Greensboro, N.C., and owned by Mobile-based Battle House Inc.

Mississippi * Grand openings were held in October for Bonita Lakes Mall and Bonita Lakes Crossing in Meridian. Both are developments of Chattanooga, Tenn.-based CBL & Associates Properties Inc. Bonita Lakes Mall is a 725,388 sq. ft. center anchored by Dillard's, McRae's, JCPenney, Sears and Goody's Family Clothing. A United Artists theater is scheduled to open there this spring. Bonita Lakes Crossing is a 95,000 sq. ft., associated center anchored by Books-A-Million and TJ Maxx. It also contains 14,000 sq. ft. of small shop space, plus space for two additional anchors.

* Plans are in the works for Casino Factory Shoppes, a 500,000 sq. ft. upscale, factory outlet village in Tunica. Being developed by Danvers, Mass.-based First City Development Co., the project is located in an area that features a number of gambling resorts along the Mississippi River. The 160,000 sq. ft. first phase is expected to be completed this fall. Auburn, Ala.-based Lease America is handling the leasing for the project.

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