When your MSA gets more than 1 million people, then come talk to us.”
For years, that's what Birmingham developers and brokers heard from national retailers when pitching projects. But not anymore. The U.S. Census Bureau is incorporating several outlying counties into the Birmingham MSA, bringing its population up to the critical 1 million point — a benchmark that attracts major retail attention.
Birmingham has been chugging along for a while now, with impressive growth in population, income and housing. Although a large part of the MSA's population is in Jefferson County, and overall population grew only 1 percent between 2000 and 2001, nearby Shelby County saw a 4.5 percent jump in that same period. Per capita income in 2001 was $29,057, up 3.9 percent from 2000. Median household income was $47,746 in 1999, up 0.6 percent from 1998, according to economy.com. More significantly, the market includes pockets of wealthy consumers. According to census data, Birmingham currently has 8,337 residents earning more than $200,000 per year.
In the third quarter of last year, the market's median home price was $137,000, up 2.3 percent from a year earlier. In fact, 2002 home sales were the best in the market's 92-year history, according to the Birmingham Association of Realtors. South Jefferson County and North Shelby County are the market's brightest growth spots, with more than 5,000 new lots under development.
In addition to improving demographics, retailers are finding property and business taxes and construction costs are lower in Birmingham than in comparable markets such as Raleigh, N.C., says Jeffrey Bayer, president of locally based Bayer Properties. In fact, construction costs in Birmingham are currently 85 percent below the U.S. average, and state incentives provide for annual tax credits up to 5 percent of capital investment for a 20-year term.
So, development is heating up. The Trussville submarket northeast of the city is seeing a lot of strip center development, while upscale retailers are seeking space near the high-end submarkets of Hoover and Inverness. Average base rents start at $18 for strip centers and range to $30 for mall space, developers say.
Notable big boxes that recently entered the market include Wal-Mart, Target, Costco and Best Buy. Bayer Properties' director of tenant representation Hunter Keller is helping Hobby Lobby, Qdoba, Pier 1 Imports, Dress Barn and Panera Bread search for Birmingham sites. Bass Pro Shops is also considering nine locations in the market for a new store, and Publix is driving neighborhood and power center development with several new stores. But the push could result in lost market share for dominant local grocers Winn-Dixie and Bruno's.
The market's most troubled mall properties are, predictably, two of its oldest. Both Century Plaza and Eastwood Mall, which face each other on a busy intersection, have seen traffic decline significantly since their salad days in the 1970s. The centers are located as close to the market's affluent demographics as other thriving malls, but they just can't seem to draw those shoppers in. Century Plaza comprises 747,000 square feet and is anchored by Rich's, JCPenney, McRae's and Sears, while Eastwood includes 598,000 square feet and is anchored by Parisian.
Insignia/ESG is currently creating a revitalization plan for Eastwood Mall on behalf of its owner, Lehman Bros. Negotiations for new and unconventional anchors are currently underway, though Insignia won't mention any specifics yet. General Growth Properties is also recruiting new inline tenants to help revitalize Century Plaza.
At Brookwood Village, a 692,000-square-foot upscale regional mall, a recent renovation and repositioning is paying off. The mall added a new, two-level Books & Co. store, converted its McRae's anchor to Parisian, relocated small-shop tenants and created a lifestyle-type area with streetfront shop access and four restaurants that are new to the Birmingham market. AnnTaylor Loft and Z Gallerie also joined the tenant lineup.
Owner Colonial Properties Trust says it is pleased with the results, and says the addition of the new restaurants has increased traffic during lunch and dinner — traditionally low-sales periods for the mall — and Brookwood is currently 90 percent occupied. “On a year-over-year basis, 14 of the mall's 19 small shops saw sales increases for Christmas. Overall, total sales were up 13 percent for the 2002 Christmas season,” says Lee Robertson, senior vice president of finance for Colonial. “That was huge considering the ICSC predicted Christmas 2002 sales would be flat to down across the country.” The mall averaged $300 per square foot in sales for 2001, but Robertson says 2002's figures should show a marked improvement.
Nearby, Bayer Properties has completed the third phase of its 800,000-square-foot, open-air lifestyle project, The Summit. It brought in a Saks Fifth Avenue anchor and several new retailers such as Panera Bread, The Children's Place and Liz and Jane. Jeffrey Bayer says the center's concentration of upscale tenants has extended its trade area to a 25-mile radius. Bayer also says the center is currently 99 percent occupied and achieving $450 per square foot in sales, more than 25 percent above the national average.
Meanwhile, more mall competition is coming: EBSCO Properties is entering the upscale retail development arena with Tattersall Park, a mixed-use project near the intersection of Highways 280 and 119 scheduled to open in 2004. EBSCO vice president and general manager of development Joe Talentino is in the process of signing tenants for the project's 700,000-square-foot retail component. Though Talentino declines to mention any specific stores that he is targeting, he says it's not hard to convince upscale retailers to come to Birmingham. He says 30 percent of upscale Birmingham shoppers are currently traveling to Atlanta to make high-end purchases and 23 percent are traveling to Nashville.
Despite the new developments, the region's dominant mall remains Riverchase Galleria. The 1.7 million-square-foot super-regional center retains a 98 percent occupancy rate. “In the real world, that's about as good as you can get,” says Carl Bartlett, senior vice president for Jim Wilson & Associates, the mall's owner. Riverchase is anchored by JCPenney, Sears, Parisian, McRae's and Rich's and includes office and hotel space.
In the past few years, Riverchase's sales per square foot have remained flat at $450 per square foot. “But in the fourth quarter of 2002, we saw an uptick in sales led by the department stores.” Trendy junior apparel stores are also performing well at the mall. Bebe and Arden B. recently opened, and catalog retailer Delia*s' new store has been a smash success, Bartlett says.
One of the factors contributing to the center's boom in sales is the completion of an interchange fly-over with nearby Highway 459, which allows traffic to flow more easily in and out of the massive Riverchase Galleria site. Until the new ramp was built, it was easy to enter but not so easy to leave.
A department store haven?
It's not just at Riverchase where department stores are fighting the national trend (they're doing well). At Brookwood, Robertson says Parisian sales are up since the store's conversion, and the mall's Rich's store continues to be the chain's best performing store in Alabama. At the Summit, Bayer says its Saks Fifth Avenue store has outperformed Saks Inc. expectations. And at Riverchase, Bartlett says JCPenney has done particularly well. “They were ecstatic about what they were doing,” he says. “This Penney's store is one of the first fully renovated stores under their new concept that incorporates a more centralized checkout.”
|Total Square Feet
|Vacancy Rate (%)
| Highway 280
*includes new construction that will be absorbed in 2003
Source: The Shopping Center Group
The big question in the department-store sector is which chains will be entering the market. EBSCO has slots for two anchors at Tattersall Park, and the shuttered three-level, 235,000-square-foot Macy's at Riverchase Galleria is ready to be redeveloped.
Last month, Federated swapped the former Macy's space for a Chicago store owned by Birmingham-based Saks Inc. Federated is converting the Chicago store into a Bloomingdale's, but Saks hasn't revealed its plans for the Riverchase location.
Two of the Saks brands — Parisian and McRae's — are already in the mall, and it operates another Saks nearby at The Summit. Saks Inc.'s collection of regional department store brands includes Proffitt's and Younkers. Dillard's is another chain not represented in the market. “There's been a lot of activity around it, but I'm not sure which direction they would go in,” Bartlett says of the vacant space.
All of this retail activity is exciting for Birmingham consumers. “I don't have to drive to Atlanta to shop at Bebe or Saks,” says Amy Zaracostas, 29, a corporate lawyer who spends a minimum of $250 on clothing and accessories each month. Amy and her husband Chris, 33, also a lawyer, are typical of the affluent Birmingham demographic retailers are anxious to attract, earning a combined annual income of more than $100,000. The Zaracostas currently lease a Mountain Brook town home but are planning on buying a house in 2003 and starting a family. Pay attention, developers: Amy's wish list for new stores includes Nordstrom, Crate & Barrel, Galyan's and Loehmann's.