Retail Traffic

Capital Improvements

Washington D.C. and Richmond are most famously paired as the two national capitals during the Civil War. Today, the cities have a new bond. Each has undergone a resurgence in the past decade, drawing new jobs and residences. And now retail developers are reaping the rewards.

A main beneficiary in both cases is the state of Virginia. In the north, Alexandria and Arlington are on the cutting edge of a growth wave that has swept across Northern Virginia, one of the wealthiest pockets in the entire country. In the south, Richmond — once known as the murder capital of the country — is now seeing glistening lifestyle centers and mixed-use projects pop up downtown and in its own modest suburbs.

The state and national capital are the main engines for state-wide growth. As a whole, Virginia's population growth between April 2000 and July 2005 was 6.9 percent, compared with the national average of just 5.3 percent, according to the U.S. Census Bureau. Virginia also has a higher percentage of residents with bachelor's degrees or higher (29.5 percent) compared to the national average (24.4 percent). The number of African-American, Asian-American and woman-owned firms is also higher in Virginia, according to the Bureau.

The Commonwealth, with more than 178 residents per square mile is twice as dense as the national average of 79 residents per square mile.

Driving retailers here is not just the presence of a lot of warm, busy bodies. What's got retailers salivating is the average household income of $94,500, compared to the national average of $72,900, and projected to rise to $105,100 by 2011.

That's why Marty Diamond, vice president of leasing for Thur & Associates considers Northern Virginia especially to be one of the best retail markets in the country.

“Even when the rest of the country has some sort of dip in the economy, this area is more immune than anywhere else,” Diamond says. “The government just isn't going to be laying people off. Plus we have all the technology, biotech and defense industries here. More and more chains recognize that.”

The McLean, Va.-based leasing and brokerage firm has nine strip centers in Northern Virginia accounting for 1 million square feet.

The rest of the region isn't laying off people either. According to Alexandria, Va.-based consulting firm Delta Associates, although the pace of job creation in the Northern Virginia area will cool in 2007, there will still be 59,500 new jobs and an additional 53,500 in 2008.

According to Greg Leisch, CEO of Delta Associates, there are more dual income households in the DC area than anywhere else. With so much disposable income they buy convenience. “Convenience grocers do a landslide business here,” Leisch says. “There is a grocery war going on. Grocery store sales per square foot are 80 percent higher in the metro area than the U.S. average. Every grocery here is trying to expand and every grocer that isn't already here is trying to get in.”

Wegman's has added two 160,000-square-foot stores and plans on more, and Matthews, N.C.-based Harris Teeter is also shopping for new locations.

Of the 40 grocery stores under construction in the D.C. area, 65 percent of them are in Northern Virginia.

Retail vacancy rates in the metro area was just 2.3 percent in 2006, and rents increased 5.7 percent.

As a result, retailers don't drive up and down a given street looking for “For Rent” signs. Stores that do close here typically reopen with a new name without a leasing sign ever making it into the window.

According to retail leasing agents, those that are already here want more and better real estate; those that aren't here yet are lining up for any new or existing space that comes on the market. Newcomers looking for multiple spaces include Massage Envy, Great Clips, and Cartridge World, according to Diamond.

Redevelopment has not kept pace because, Leisch says, shopping center owners know customers will patronize their tenants whether they renovate or not.

In fully developed areas, there is little opportunity for new development. Market economics are driving redevelopment where density makes economic sense.

Henry Fonvielle, executive vice president of The Rappaport Companies noted a number of redeveloped sites are movie theaters with ample parking. Because of the values, you can tear down theaters and build mixed-used projects creating a tremendous amount of density. The northern Virginia cities of Arlington and Alexandria have embraced high-density properties to counter the issues arising from the mounting traffic.

“They are looking to counter vehicular neighborhoods and get multiple uses in a single space,” says Fonvielle.

Federal Realty Investment Trust operates nine grocery-anchored centers in northern Virginia, as well as two vertical, mixed-use lifestyle projects in Arlington.

“We have a property in Tysons Corner called Pike 7 that is on 12 acres, directly across the street from a planned Metrorail stop,” says John Tschiderer, vice president of development for Federal Realty Investment Trust. The 164,000-square-foot center currently contains a Staples, Panera Bread, Tweeter's, and a bank pad site. “But under its current zoning, the opportunity is there to do four times the density, or 800,000 square feet; it could be more than that,” Tschiderer says.

Frustrated with traffic, residents want to live, shop and work within close proximity of one another, forcing developers inward. Big box power retailers are joining grocery stores as ground-floor anchors in an increasing number of vertical mixed-use projects with parking.

These projects marry developers who bring an expertise in retail, office and residential, respectively.

A year ago, the Carl M. Freeman Companies owned four grocery-anchored shopping centers in northern Virginia. Today, the 60-year-old company — which had never sold a property before — has kept just one.

Freeman saw an opportunity to cash in, avoid paying a large brokerage commission by selling off-market, and be retained by the new owner as the management and leasing company for the property.

“We were approached by two separate, aggressive investors,” says Michael T. Reilly, vice president and general manager of Freeman, based in Olney, Md. “In both instances, the buyers had zero experience with buying or owning grocery centers.”

South Riding Town Center (an 85,500-square-foot center sold for $13.75 million) and Ashburn Town Square (an 89,628-square-foot center sold for $19 million.

The third center, Van Dorn Plaza, sold by Freeman, was a different story, but not an unusual one in Alexandria. This was a traditional 120,000-square-foot center with Safeway (32,000 square feet) as primary anchor, as well as a CVS. It's a situation where the Safeway's sales were dwindling and the site is sorely in need of rehabilitation.

The city of Alexandria agreed with the Freeman Company's assessment and approved a rezoning for the site that could potentially double its retail density and add several hundred vertical residential units.

Southern sprawl

Broad Street has been the traditional retail corridor for Richmond. But the dramatic success of high-end retailers such as Nordstorm, Crate & Barrel, and Swarovski at the 1.2-million-square-foot Short Pump Town Center west of the city led to heightened interest among retailers and developers.

And where one retailer has success, it's a sure bet others will soon follow.

“I've seen numbers that show anything from 4 million to 7 million square feet proposed for Richmond,” says Debbie Wake, senior vice president for Divaris Real Estate in Richmond.

Fueling the surge is the city's influx of residents. Population growth in Richmond has nearly doubled in the 25 years ended in 2005, jumping to 1,132,036 from 600,492 according to figures from the Greater Richmond Chamber of Commerce.

And, according to Wake, Richmond's employment outlook is robust being home to a handful of Fortune 500 companies including Genworth Financial, Circuit City, CarMax and a Federal Reserve division.

Divaris' Wake noted some centers in development in and around Richmond include Divaris' 900,000-square-foot Shops at White Oak Village on the east side of Richmond, Zaremba Group's 1-million-square-foot Westchester Commons at Watkins Centre in southwest Richmond, EDCO LLC's 550,000-square-foot Hancock Village and Unicorp & Timmons Group's 430,000-square-foot West Broad Village.

With the introduction of an interstate two years ago that circles Richmond, area residents no longer have to trek 108 miles to D.C. to shop at upscale retailers. “That (the interstate) spurred a lot of the development,” said Wake. “It made Short Pump dynamic because it's so easy to get there.”

Washington, D.C.-based Archon Group acquired a 40-acre site in August 2006 directly across from Short Pump Town Center and received approval to change its zoning from hospital to mixed-use. Archon split it into two parcels — known together as the Corner at Short Pump. Construction is set to begin later this year on the 79 townhomes, 200,000-square-foot open-air retail center and 40,000 square feet of office space.

“There are a lot of tenants that want to be in that market,” says Brooks Bossie, acquisition director at the Archon Group. “And a lot of existing Richmond tenants know that ground zero for retail has shifted on them; they're now looking for relocation within the vicinity.”

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