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A retail oasis

Megamall development has dried up, but other formats remain fertile in Nevada, Arizona and New Mexico.

Sprawling malls are fast becoming artifacts of the past as developers continue to focus on creating power centers, neighborhood centers and pedestrian-friendly, open-air marketplaces.

Nowhere is this trend more apparent than in the Southwest, where developers are laying bets that Las Vegas - already heavily loaded with retail - can support even more activity. Those bets are probably safe, given that the desert tourist mecca draws more than 30 million annual visitors from around the globe.

Nevada "Despite market over-saturation, Vegas retail is going great guns," notes Martin McFarland, principal and city leader of Las Vegas and Reno/Tahoe Trammell Crow. "There's no question about it. It's booming."

McFarland says the retailers he's been dealing with are enthusiastic about town center retail concepts, and if the popularity of regional malls is on the decline, strip center development - equally ubiquitous during the past 10 to 15 years - also is taking a hit.

"We're seeing a lot of vacancies," McFarland says. But by the same token, he adds, power centers are continuing to hold their own, at least for now. "There is very aggressive movement into Vegas and to a lesser extent, Reno, by big boxes like Target, Mervyn's, Lowe's and The Home Depot."

The median age for residents of the Las Vegas Valley is 41.2 years. Capitalizing on this relatively youthful market, specialty food shops also have begun exploding onto Vegas' retail scene. Jamba Juice and Smoothie's both recently opened stores, and new Starbuck's locations continue to pour in at a rapid rate. Krispy Kreme doughnuts, undergoing a widespread expansion of its own, recently entered the Southwestern market for the first time, while Babies `R' Us, another newcomer to the area, also took its first tentative steps into Vegas.

Continuing a massive expansion throughout the country that encompasses Vegas and other cities in the Southwest, drugstores such as Walgreen's, Eckerd and CVS are scrambling to affix their names to outparcels and hard corners that afford maximum visibility and a neat, crisp look.

"There is, I think, a rosy future for them," McFarland says. "But companies like Target and Wal-Mart are starting to put in their own pharmacies on the premises, and as America grows older, the established drugstore chains could very well begin to see some competition."

In their rush to corner the market, the drugstores might do well to heed a lesson learned by the numerous office suppliers that opened in the area, only to fall victim to a saturated market. "The Office Depots, Office Maxes and Staples are beginning to slow down," notes McFarland. "There was just too much competition there."

McFarland predicts continued retail strength, even if the overall pace slows. He notes that some retailers are following households into more suburban areas, which could lead to slower growth in areas closer to downtown. "As far as the immediate future goes, I think, the economy in the next year will begin to slow down in general," McFarland says. "The good retailers will survive, but the marginal ones may very well end up having to close their doors."

Arizona With its population of more than 3 million, a good housing market, and strong job growth, Phoenix is fueling a demand for retail development. For seven years in a row, more than 30,000 new single-family homes have been built in the Phoenix metropolitan area. In addition, employers such as USA Insurance and Intel are moving into the city.

But even more significant, perhaps, is the imminent completion of the city highway system. During the past four years, more than 45 miles of new road has been built within the Phoenix metropolitan area alone. "All of the significant retail development in Phoenix has occurred, and is occurring, along that highway, which is radically changing peoples' patterns for working, living and shopping," explains David Larcher, executive vice president of Phoenix-based Vestar Development Co.

Arguably the area's most ambitious retail project, Desert Ridge Marketplace recently opened at Loop 101 and Tatum Boulevard at a price tag of $168 million. The 1.2 million-sq.-ft. retail center boasts a total of 17 anchors, including Old Navy, PETsMART and Tower Records. "It is the city's only true regional entertainment center and it probably will have a significant impact on the region region for years to come," Larcher notes.

Other projects also recently celebrated grand openings along the highway, including Deer Valley Towne Center, a 575,000-sq.-ft. regional entertainment power center at I-17 and Loop 101; and Mesa Grande, a 560,000-sq.-ft. center with a 240,000-sq.- ft. Wal-Mart at the northeast corner of Superstition Freeway.

Larcher notes that the majority of the large-scale retail developments in Phoenix are complete. He anticipates that at least for the near term, developers will concentrate their attentions on introducing new retail venues designed to capitalize on the migration into the city of approximately 100,000 people per year, as well as the 60,000 new jobs created in Phoenix annually. "I imagine we will be seeing a lot of new neighborhood centers," he says.

As part of an effort to locate its jobs "where the people are," Phoenix has designated as its "downtown north" an area one mile east of the intersection of Squaw Peak Freeway and Loop 101. The area already has attracted a number of significant businesses, including American Express, Sumi Tomo and Mayo Clinic. Meanwhile, The Marriott Co. plans to build its largest Arizona resort on the site.

As for the downtown area proper, "Phoenix doesn't have a downtown population. So in the past, retail has been a struggle," Larcher says. "Some new development is starting to occur downtown, but primarily, it's office. We're seeing very limited retail there."

As is the case throughout much of the country, Phoenix is experiencing significant expansion by a number of the big boxes, including Lowe's, The Home Depot, Home Improvement, Target and Cisco. Wal-Mart already has opened three new super centers and plans to open more. "As a result of the expansions," says Larcher, "most of the premiere building sites in town have vanished."

New Mexico The big boxes are also clamoring to make their presence felt in Albuquerque. For example, Lowe's, which recently opened its first New Mexico location, plans to ultimately have a total of six stores in Albuquerque.

"Lowe's will be formidable competition for The Home Depot," predicts Bob Feinberg, president of First Commercial Real Estate. Gearing up for the contest, The Home Depot is looking to expand into Las Lunas, an area 20 minutes south of Albuquerque that Feinberg calls one of the fastest-growing cities in the state. With its rural atmosphere and emphasis on ranching and farming, "Las Lunas basically is what Albuquerque was 40 years ago," says Feinberg, adding that "Wal-Mart recently opened a super store there which is doing tremendously."

As for what the future has in store for Albuquerque's retail market, Feinberg does not equivocate. "The older centers have caught on that unless they refurbish and catch up with today's techno state-of-the-art centers, they will find themselves dealing with `B' or `C' tenants." As far as new development goes, "We may possibly see some of the lifestyle centers being built," Feinberg says. "But when it comes to the power malls, we're done."

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