Marketplace
Surveys

DJC.COM
 		    

February 22, 2001

Retailers take to the streets

By RICHARD MUHLEBACH
Kennedy-Wilson Properties

Retailing never stops changing and shopping centers and retail districts never stop evolving. There will always be old-line retailers, like Montgomery Ward, going out of business and once trendy retailers, like Bugle Boy, filing for Chapter 11 bankruptcy protection. Every few years a new round of box stores, like Office Depot and Office Max, close non-performing stores. Eight theater chains have recently filed Chapter 11 and Warner Brothers Studio stores are following their famous line, “That’s all folks!” and closing or selling their 130 stores. So what’s new? Change is the norm in retailing.

This constant change forces shopping centers and retail districts to evolve. Developers and owners of shopping centers must be creative to turn vacant stores into revenue and traffic-generating units. The closing of a department store, supermarket or theater can change the character of a shopping center. These merchants set the tone for the shopping center’s tenant mix, shopper’s profile and shopping patterns. Developers respond to the changes in retailing by creating new shopping venues.

In the 1970s enclosed malls and specialty centers were first developed on a grand scale. The climate-controlled mall became the preferred place to shop. Specialty centers, like Ghiradelli Square in San Francisco, provided a fun alternative to the cookie-cutter malls with the same department stores and national retailers.

The 1980s were the decade of value shopping, and developers built power centers and outlet malls. A desire by consumers to return to a shopping venue of another era and the popularity of upscale retailers like Eddie Bauer, Abercrombie and Fitch, created the lifestyle centers of the 1990s. A need to find something to do in the “burbs” and the development of the multi-screen theater created the entertainment centers of the 1990s.

Consumers’ preferences are changing again and they are following retailers back to neighborhoods and downtowns. Developers are responding by creating urban retail shopping centers and converting neighborhood buildings to retail uses and restaurants.

A walk through neighborhoods in Seattle and San Francisco will discover which retailers are moving into the different neighborhoods and who shops these neighborhoods. We will also discover that rents in some of these neighborhoods are equal to, or they far exceed, rents in regional malls.

Seattle’s neighborhoods

Downtown Seattle, thanks to the vision and courage of Jeff Rhodes, former mayor Norm Rice and the Nordstrom family, has been transformed from a downtown that was becoming only a place for office towers to an 18-hour vibrant center with multiple activities. Seattle’s downtown is now the second best downtown west of Chicago. Upscale restaurants, trendy national retailers, a second multi-level mall, the flagship Nordstrom store and an expanded convention center have drawn office workers out of their towers, attracted tourists and conventioneers, and city residents back to downtown. Few spaces are available in downtown Seattle and rents are in the $50 to $85 range, with no place to go but up, up and up.

Belltown, just north of downtown, has almost completed its transformation into a mini-version of Chicago’s State Street. High-rise apartments and condos have been popping up throughout the neighborhood since the mid-1990s. Retailing is primarily along First Avenue, with locally owned and trendy shops selling cool clothing. Most of the restaurants prefer reservations, which limits hanging out and strolling the area while waiting for a table. Shoppers come to Belltown by car or walk from downtown. Rental rates are in the $18 to $32 range.

Queen Anne is one of the most popular and admired neighborhoods in Seattle. The neighborhood has older, classic single-family homes, small apartment buildings and condos and borders Seattle Center. Retailing is evenly divided between independent and chain merchants. The strength of this neighborhood’s retailing is evident by the incredible sales of the supermarkets, which range from $800 to $1,000 per square foot. The consumer base is broad, drawn from adjacent neighborhoods. Sports and cultural events at Seattle Center provide abundant support for the restaurants in lower Queen Anne. Rental rates for upper Queen Anne are $24 to $35, while rates for lower Queen Anne are $20 to $35.

The University District serves primarily the students and residents in the neighborhood. University Village is a dynamic lifestyle center across from the University and has a regional draw. Rents in the neighborhood, excluding University Village, are $20 to $28.

Capitol Hill is an area with three colleges and a diverse population. The area has limited softgood retailers and mostly service merchants and restaurants. The consumer base is predominately the immediate neighborhood and young people visiting a funky area. Retail rates are $25 to $35.

A unique neighborhood with relatively new retail developments is the Roosevelt neighborhood. This predominately single-family home neighborhood has limited retailing, yet the neighborhood has become a regional draw with the only Whole Foods in the Puget Sound Area and several specialty luxury stereo stores. Rents range from $20 to $30 plus.

San Francisco’s neighborhoods

A review of retailing in San Francisco must start with Union Square. Union Square is a relatively small area of several square blocks, three blocks from Market Street and the financial district. This area has over 16 million visitors annually and draws from the entire San Francisco Bay area. A cable car line that carries over one million passengers a year runs through the area. Sales are so exceptional that Macys and Sak’s have two department stores here, one for men’s clothing and the other for women’s clothing. Neiman Marcus has a prominent corner location right on the square. Several of the upscale chains have their number one or two performing stores in Union Square. Old Navy has a 101,000-square-foot flagship store and The Gap, Banana Republic and Kenneth Cole have two stores on Union Square.

When Market Street, with its six-level retail mall anchored by Nordstrom on the top three levels and the adjacent remodeled multi-level mall anchored by Bloomingdale’s, is combined with Union Square, this area becomes one of the strongest and best retailing areas in the world.

Transportation to Market Street and Union Square is phenomenal with several municipal bus lines, streetcars, cable cars and BART. There are several large parking garages throughout the area. Rents for off-the-beaten-path locations in Union Square are $100 per square foot; prime locations go for as high as $500 per square foot.

Chestnut Street in the Marina District serves the affluent populations of the Marina, Pacific Heights and the Presidio. Trendy independent merchants and great neighborhood restaurants populate the area. Rents are $50 to $70.

Union Street shoppers come from Nob Hill, Russian Hill and the northern slope of Pacific Heights. Street parking is fairly good and the bus system throughout San Francisco is great. About 70 percent of the retailers are local merchants selling unique international designer clothing, home goods and jewelry. All of San Francisco’s neighborhoods have great restaurants and Union Street is no exception. The customer is predominately female, 25 to 40 years old. Rents are from $60 to $100.

The Mission District is an ethnically rich neighborhood with a large Hispanic population. The residents are primarily in the lower-middle to middle-middle economic bracket. The neighborhood has dozens of ethnic corner grocery stores and restaurants. The outstanding public transportation in the city and throughout the Bay Area enables ethnic groups from the greater Bay Area to shop and dine in the Mission, making it a regional draw. Rents on Mission Street, which is still a little rough, are $18 to $25. One block west is Valencia Street, which is becoming a trendy street with specialty restaurants, and rents are from $25 to $35.

Castro Street is adjacent to the Mission District. This area has one of the largest gay populations in the world. The area is famous for the Castro Theater, a classic theater building from the 1920s. Merchants, restaurants and bars serve the immediate neighborhood and people throughout the Bay Area with an alternative lifestyle. Rents are $48 to $60.

Southern California

An area in southern California that has recently experienced a dramatic transformation from a quiet area of two- and three-story commercial buildings built in the 1940s and 1950s to one of the hottest and trendy streets in southern California is Santa Monica’s Third Street Promenade. The center of the area is a three-block promenade that has no vehicle traffic on the street. About five years ago trendy restaurants opened on the promenade. The draw of these restaurants was the catalyst for redevelopment of the area. The newest and best retailers opened on the promenade to capture restaurant traffic. Traffic on the promenade on a Saturday afternoon is about equal to the traffic on a mall during a Christmas season weekend.

This area has nine to 10 million tourists annually and draws from Santa Monica, Westwood and UCLA. The Santa Monica Pier, an amusement area, and the ocean are just a few blocks away. Five years ago rents were $30 to $40 and today they are $90 to $110 per square foot.

Twenty years ago shopper’s preference was the enclosed mall venue, today the preference is shifting to street shopping.

Another transformation is when a father learns from his son. I must credit most of the data in this article to my son Eric, who is a retail broker with Victor Fandel in San Francisco.

Richard F. Muhlebach, CPM, SCSM, CRE, RPA, is the senior managing director of Kennedy-Wilson Properties Northwest, Bellevue.


Other Stories:


Copyright ©2009 Seattle Daily Journal and DJC.COM.
Comments? Questions? Contact us.