February 2, 2004
Under pressure | While office lags and industrial sags, the retail segment of Maine's commercial real estate market continues to inflate. Rapidly.
By Scott Sutherland
Retail rules, at least when it comes to what's hot in Maine's commercial real estate.
In his report to the Maine Real Estate & Development Association's annual real estate forecast conference, held last month in South Portland, Peter Harrington, a broker at Malone Commercial Brokers in Portland, described 2003 as a "very active year for the retail segment in the greater Portland area and in most major markets around the state."
The vacancy rate among commercial space for retail use in the greater Portland area fell by half, Harrington said, while leasing and sales activity were equally robust. "Even with an economic slump and the advent of Internet retail sales, good old bricks and mortar have managed to become commercial real estate's preferred asset class," Harrington said.
New construction, expansion and redevelopment of older or unused properties are all factors in that good health, which is part of the overall vigor of the economy's retail sector ˆ a phenomenon driven by the indefatigable spending habits of American consumers. Harrington said the retail segment of Maine's commercial real estate market promises to be just as active in 2004, though his report ended on a somewhat cautionary note. "Only time will tell if Maine will be able to support all this new retail space and what effect all of the new and/or redeveloped retail space will have on older retail centers and the Maine Mall. The competition for the consumer's dollar has never been more intense."
Mainebiz recently asked Harrington to elaborate on some of the retail trends he highlighted in his report.
What's driving this segment besides consumer spending?
The main thing is the return on investment you can get in this market, and that's resulting in a lot of new construction and redevelopment. It'll be the hottest segment this year, too, especially if we see an increase in jobs.
Looking at just the major announcements that have come recently, we're looking at as much as 1.6 million sq. ft. of new retail space, from Augusta south, mostly. We haven't seen this type of growth since the late 1990s. We certainly didn't expect to see this kind of an increase in retail activity so soon. But there's so much capital out there, capital that exists outside the improving stock market, that's going toward real estate investment.
What kinds of patterns are you seeing as far as what's being developed, and where?
Up until now, what's been driving retail development in greater Portland has been the concentration in the Maine Mall area, which could attract people willing to drive an hour to shop. What we're seeing now is that the new development is getting spread out as retailers move closer to the spread-out population of Maine. If you live in Sanford you don't have to drive to the Maine Mall anymore ˆ you can just go to Biddeford for everything you need. It's a matter of convenience. Retailers are getting closer to the consumer.
That means developers are rediscovering older shopping centers that are already closer to consumers, like Pine Tree Shopping Center and Bradlee's Plaza in Portland, or Falmouth Shopping Center. Do you see the redevelopment of those kinds of properties continuing?
The absorption of vacant space will continue, and it will continue to be tough to find open tracts of land that are large enough to build on. That's what makes those older spaces like Bradlee's or Pine Tree so attractive. The footprint already exists, and they already have the parking, so you're not trying to increase the amount of land that's paved. The trend will continue in major traffic areas, in greater Portland and in places like Auburn, with the old Wal-Mart site. I think you'll see a lot of activity in those markets that haven't seen as much activity like this in recent years, like Lewiston-Auburn and Augusta. It's all part of this move away from major mall areas.
What's the plan for Pine Tree?
The rumor is that it would be done by Packard, that it would be redeveloped into a Lowe's sometime this year or next year. (For more on Packard's plans, see "Retail opportunity," p. 19.) The larger stores in that complex like Marden's would probably be ok, but the smaller inline stores might get pushed out. Again, it's all about convenience. You're talking about Exit 8, right off the highway, and you don't have to battle the mall traffic to do your shopping.
You mentioned Augusta as being part of a move away from major mall areas. At the same time, though, there are two massive projects going forward there.
You have S.R. Weiner adding a half-million square feet to its Marketplace at Augusta property, which was already 700,000 sq. ft. Then you have Augusta Crossing, which Packard is doing. That's another 450,000 sq. ft., which will be anchored by a 165,000-square-foot Lowe's. So that's a million square feet of new retail space in Augusta alone, and that's just the big stuff. That doesn't take into account the small strips, the Rite Aids, the banks, all the other projects that are coming into that market.
Is Weiner trying to intercept some of those people who might otherwise drive down to the Maine Mall?
Absolutely. They're sharp guys ˆ they sell the Maine Mall for $270 million and immediately go up the street to Augusta and build another half-million square feet. It's projects like this that are going to make the future of the Maine Mall very interesting.
How so?
I think what you're starting to see at the Maine Mall is how all the overbuilding in that area is making it a victim of its own success. On a busy day you'll have mall traffic backed up all the way to Payne Road. A lot of people look at that and say, "Hey, forget it, I'll go somewhere else, I don't need all the hassle."
And where they're going are the smaller "power centers" that are popping up all over southern Maine. Can you describe the power center phenomenon and what it means for the existing retail scene?
I think you'll see more of this kind of development; there are a number of them still being built. The best example is probably Maine Crossing, which Packard did, which is anchored by a Target. That's generally the model: one or two big boxes and lots of parking. That's what's happening in Biddeford down along Route 111. It's part of a broader trend of developers moving away from building enclosed malls.
There often doesn't seem to be much opposition from communities to any kind of retail development, no matter how big it is. What's going on there?
It's really hard for all those communities to say no to the increase in tax revenues that all that retail development will bring, and the Wal-Marts and Targets of the world know it.
So if it's relatively easy right now for large retailers to build new stores in places like Maine, what effect is that having on the existing retail mix?
In other parts of the country, where you're seeing most of the pressure seems to be in the middle of the market, like in the larger department stores. You have the large discount retailers like Wal-Mart doing their thing, and you have the high-end retailers going after their niche shoppers and doing their thing, but in the middle it's looking a lot more confusing. If you're a store in the middle, like Macy's, for example, you're getting pressured at both ends of the retail spectrum, where all the activity is.
In your MEREDA report, you predicted that the grocery segment of the retail real estate market this year would be, to quote Emeril Legasse, "kicked up to notches unknown." What's going on here?
It's the same thing we're seeing with all the retailers ˆ the grocery chains are trying to spread their stores out and bring them in closer to consumers. In the greater Portland area, it's about reaching suburban consumers. People thought Shaw's was crazy to build a store on Payne Road in the 1990s, but it's on the way to Gorham and Scarborough, and look at all the growth that's taking place in those areas. Same with the Shaw's project on Route 302, or the Hannaford at Exit 10 in Falmouth ˆ it's all about trying to make it more convenient for shoppers.
Hannaford and Shaw's are expanding, Wal-Mart's selling groceries, new players like Stop & Shop are coming into the southern Maine market ˆ how much is too much?
Well, that's the question ˆ at some point, you have to wonder if they can all hang on, especially if Wal-Mart keeps making it difficult for the established grocery chains. As with the other retailers, I don't see how the grocery chains can anticipate huge sales growth when you've got stagnant population growth in the state. So I think we might be getting close to some kind of saturation point with the groceries.
But you know, every time we say that we're proven wrong. The pressure on consumers by retailers just keeps growing, and so far we've shown that we can absorb a lot of that pressure.
In his report to the Maine Real Estate & Development Association's annual real estate forecast conference, held last month in South Portland, Peter Harrington, a broker at Malone Commercial Brokers in Portland, described 2003 as a "very active year for the retail segment in the greater Portland area and in most major markets around the state."
The vacancy rate among commercial space for retail use in the greater Portland area fell by half, Harrington said, while leasing and sales activity were equally robust. "Even with an economic slump and the advent of Internet retail sales, good old bricks and mortar have managed to become commercial real estate's preferred asset class," Harrington said.
New construction, expansion and redevelopment of older or unused properties are all factors in that good health, which is part of the overall vigor of the economy's retail sector ˆ a phenomenon driven by the indefatigable spending habits of American consumers. Harrington said the retail segment of Maine's commercial real estate market promises to be just as active in 2004, though his report ended on a somewhat cautionary note. "Only time will tell if Maine will be able to support all this new retail space and what effect all of the new and/or redeveloped retail space will have on older retail centers and the Maine Mall. The competition for the consumer's dollar has never been more intense."
Mainebiz recently asked Harrington to elaborate on some of the retail trends he highlighted in his report.
What's driving this segment besides consumer spending?
The main thing is the return on investment you can get in this market, and that's resulting in a lot of new construction and redevelopment. It'll be the hottest segment this year, too, especially if we see an increase in jobs.
Looking at just the major announcements that have come recently, we're looking at as much as 1.6 million sq. ft. of new retail space, from Augusta south, mostly. We haven't seen this type of growth since the late 1990s. We certainly didn't expect to see this kind of an increase in retail activity so soon. But there's so much capital out there, capital that exists outside the improving stock market, that's going toward real estate investment.
What kinds of patterns are you seeing as far as what's being developed, and where?
Up until now, what's been driving retail development in greater Portland has been the concentration in the Maine Mall area, which could attract people willing to drive an hour to shop. What we're seeing now is that the new development is getting spread out as retailers move closer to the spread-out population of Maine. If you live in Sanford you don't have to drive to the Maine Mall anymore ˆ you can just go to Biddeford for everything you need. It's a matter of convenience. Retailers are getting closer to the consumer.
That means developers are rediscovering older shopping centers that are already closer to consumers, like Pine Tree Shopping Center and Bradlee's Plaza in Portland, or Falmouth Shopping Center. Do you see the redevelopment of those kinds of properties continuing?
The absorption of vacant space will continue, and it will continue to be tough to find open tracts of land that are large enough to build on. That's what makes those older spaces like Bradlee's or Pine Tree so attractive. The footprint already exists, and they already have the parking, so you're not trying to increase the amount of land that's paved. The trend will continue in major traffic areas, in greater Portland and in places like Auburn, with the old Wal-Mart site. I think you'll see a lot of activity in those markets that haven't seen as much activity like this in recent years, like Lewiston-Auburn and Augusta. It's all part of this move away from major mall areas.
What's the plan for Pine Tree?
The rumor is that it would be done by Packard, that it would be redeveloped into a Lowe's sometime this year or next year. (For more on Packard's plans, see "Retail opportunity," p. 19.) The larger stores in that complex like Marden's would probably be ok, but the smaller inline stores might get pushed out. Again, it's all about convenience. You're talking about Exit 8, right off the highway, and you don't have to battle the mall traffic to do your shopping.
You mentioned Augusta as being part of a move away from major mall areas. At the same time, though, there are two massive projects going forward there.
You have S.R. Weiner adding a half-million square feet to its Marketplace at Augusta property, which was already 700,000 sq. ft. Then you have Augusta Crossing, which Packard is doing. That's another 450,000 sq. ft., which will be anchored by a 165,000-square-foot Lowe's. So that's a million square feet of new retail space in Augusta alone, and that's just the big stuff. That doesn't take into account the small strips, the Rite Aids, the banks, all the other projects that are coming into that market.
Is Weiner trying to intercept some of those people who might otherwise drive down to the Maine Mall?
Absolutely. They're sharp guys ˆ they sell the Maine Mall for $270 million and immediately go up the street to Augusta and build another half-million square feet. It's projects like this that are going to make the future of the Maine Mall very interesting.
How so?
I think what you're starting to see at the Maine Mall is how all the overbuilding in that area is making it a victim of its own success. On a busy day you'll have mall traffic backed up all the way to Payne Road. A lot of people look at that and say, "Hey, forget it, I'll go somewhere else, I don't need all the hassle."
And where they're going are the smaller "power centers" that are popping up all over southern Maine. Can you describe the power center phenomenon and what it means for the existing retail scene?
I think you'll see more of this kind of development; there are a number of them still being built. The best example is probably Maine Crossing, which Packard did, which is anchored by a Target. That's generally the model: one or two big boxes and lots of parking. That's what's happening in Biddeford down along Route 111. It's part of a broader trend of developers moving away from building enclosed malls.
There often doesn't seem to be much opposition from communities to any kind of retail development, no matter how big it is. What's going on there?
It's really hard for all those communities to say no to the increase in tax revenues that all that retail development will bring, and the Wal-Marts and Targets of the world know it.
So if it's relatively easy right now for large retailers to build new stores in places like Maine, what effect is that having on the existing retail mix?
In other parts of the country, where you're seeing most of the pressure seems to be in the middle of the market, like in the larger department stores. You have the large discount retailers like Wal-Mart doing their thing, and you have the high-end retailers going after their niche shoppers and doing their thing, but in the middle it's looking a lot more confusing. If you're a store in the middle, like Macy's, for example, you're getting pressured at both ends of the retail spectrum, where all the activity is.
In your MEREDA report, you predicted that the grocery segment of the retail real estate market this year would be, to quote Emeril Legasse, "kicked up to notches unknown." What's going on here?
It's the same thing we're seeing with all the retailers ˆ the grocery chains are trying to spread their stores out and bring them in closer to consumers. In the greater Portland area, it's about reaching suburban consumers. People thought Shaw's was crazy to build a store on Payne Road in the 1990s, but it's on the way to Gorham and Scarborough, and look at all the growth that's taking place in those areas. Same with the Shaw's project on Route 302, or the Hannaford at Exit 10 in Falmouth ˆ it's all about trying to make it more convenient for shoppers.
Hannaford and Shaw's are expanding, Wal-Mart's selling groceries, new players like Stop & Shop are coming into the southern Maine market ˆ how much is too much?
Well, that's the question ˆ at some point, you have to wonder if they can all hang on, especially if Wal-Mart keeps making it difficult for the established grocery chains. As with the other retailers, I don't see how the grocery chains can anticipate huge sales growth when you've got stagnant population growth in the state. So I think we might be getting close to some kind of saturation point with the groceries.
But you know, every time we say that we're proven wrong. The pressure on consumers by retailers just keeps growing, and so far we've shown that we can absorb a lot of that pressure.
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