Retail will become Seattle's strong suit

By PETER K. SHORETT
Shorett Kidder Mathews

After Frederick & Nelson closed its Seattle store for good in 1992, most real estate experts seriously questioned the notion that downtown Seattle's real estate market would be transformed into a 24-hour entertainment/retail mecca by the end of the century.

In the early part of the 1990s, both businesses and property owners were severely hampered by an oversupply of new retail space built as part of the last wave of office construction in the aftermath of the national recession. Downtown stores lost substantial market share to the big box retail phenomenon that was rapidly growing in the suburbs.

Frederick & Nelson, I. Magnin, Woolworth and Klopfenstein's, all local institutions by our standards, closed their doors permanently, while others simply struggled to survive.

How times have changed. Walk down the Pike/Pine Street corridor today and you can hardly find a vacant retail space. Most buildings are fully leased and businesses are reporting strong sales.

Vacancies will increase when Pine Street Development's Pacific Place project is completed later this year. They expect to be 75 percent occupied when open and 85 percent leased. The project has a good mix of local and national tenants. Pottery Barn and Ann Taylor will be relocating from their U.S. Bank Center spaces, and Williams Sonoma will move out of Westlake Center. Tiffany, Club Monaco, J. Crew, Finish Line, and the Store of Knowledge are all new to downtown.

Theater ticket revenue for 1997 in downtown Seattle was up 40 percent from 1996. Photo by Chad Brown Photography.

Across the street from Pacific Place is the redevelopment of the former I. Magnin building which has announced lease commitments from Old Navy and Gene Juarez Salon. Ken Griffey Jr.'s All Star Cafe is in the final negotiation stages. The project has about 11,000 square feet of retail space remaining for lease. Richard C. Hedreen Co. plans to add 40,000 square feet of retail space at the corner of 7th and Pine as part of the Washington State Convention & Trade Center expansion, which is substantially pre-leased.

The largest block of contiguous retail space in downtown will be created when Nordstrom moves its new corporate facilities into the former Fredrick & Nelson Building, leaving its current location vacant. As part of a swap with Nordstrom, Pine Street Development LLC obtained the development rights to the three-building Nordstorm store on 5th & Pine Street and plans to renovate the property into approximately 160,000 square feet of retail space after the Nordstrom move.

Although this is a back-burner project to Pacific Place, Pine Street continues to seek tenants for this redevelopment project. By year's end, Seattle's downtown retail core vacancy rate will edge above 5 percent for the first time since the early 90s, but the overall outlook for the retail market segment remains strong.

State-of-the-art movie theaters are having a positive impact on the downtown Seattle retail market. Cineplex Odeon operates the Meridian 16 multiplex in the Meridian project which opened in December 1996 with 16 screens, 3,200 seats in 80,000 square feet of space on three levels. The Meridian is equipped with state-of-the-art sound systems but lacks the newer style stadium seating, which has drawn some criticism from moviegoers.

General Cinema will add 11 screens with 3,200 seats in 65,000 square feet on the top two floors of Pacific Place configured in a stadium seating format. These two projects will total 27 new movie screens, representing half of downtown Seattle's total theatre market, or a 100 percent increase in new theatre viewing opportunities over the past 15 months.

Theatre ticket revenue for 1997 in downtown Seattle is up 40 percent from 1996. According to data provided by Entertainment Data, Inc., 1997 sales totaled $11.3 million, a direct result of Cineplex Odeon's full year 1997 operation. Ticket prices are up 1.6 percent from 1996 to an average price of $4.58, including matinees. Average evening rates approximate $5.50 per ticket and will likely increase as more new theaters enter the market.

We project total sales will increase substantially when General Cinema opens, with sales topping $15 million by the year 2000. Concession sales typically comprise 40 cents for every $1 spent on ticket sales. We project total theatre sales activity to reach $21 million by the end of this decade.

Theatre casualties could include outdated facilities, such as UA Cinema Cinerama, who will be forced to close their doors or develop new formats following the footsteps of the five-screen Newmark Theater, which closed last year.

At first blush, 250,000 square feet of vacant retail space and 11 new theaters sounds like an overbuilt market in the making. Our research, however, suggests that demand will be sufficiently strong to accept this new product.

Annual increases in total retail spending for the city of Seattle equaled 5 percent over the past two years and are expected to increase by 7.4 percent in 1998 and 5.2 percent in 1999. Entertainment spending increased by nearly 10 percent last year and our projections suggest strong entertainment spending will continue in the downtown core. The accompanying table highlights historical and projected retail and entertainment spending.

Total Retail and Entertainment Dollars spent in Seattle vs King and Snohomish Counties.

Rent in these new projects comes at a high price. Pacific Place is quoting rates in the range of $30 to $75 per square foot on triple net lease terms, depending upon buildout and location. Madison Marquette's project ranges from $40 to $50 per square foot triple net and Westlake Center commands similar rates with some of the highest triple net costs at $27 per square foot.

Retail businesses will need to generate sales volumes of between $500 and $750 per square foot, which is already being achieved at Westlake Center and U.S. Bank Center.

The surge of national tenancies into our market will bolster and solidify the retail core. Projects like Pacific Place offer the upscale luxury retail environment necessary to attract these high volume tenants.

Will Seattle's retail market be able to absorb this new product and achieve these rates? I think so. The energy surrounding these new developments will be attractive to both local and national retailers. In fact, sales volumes should exceed expectations as shoppers experience downtown Seattle's retail diversity. Parking will be plentiful and the lights will be on.

Where else in the western United States north of San Francisco will you be able to purchase trendy jogging shoes at NikeTown, shop for the kids at FAO Schwarz, outfit a kitchen at Pottery Barn, purchase elegant crystal vases at Tiffany's, dine in 5-star restaurants, take in a first-run movie at state-of-the-art theaters, or enjoy live theater, all within a three-block radius?

Don't forget that new suit at Nordstrom; the new store will be one of the city's main retail attractions when it opens this fall.

Copyright © 1998 Seattle Daily Journal of Commerce.