Seattle Commercial Real Estate News of the Day

Wednesday, September 21, 2011

Seattle Times Daily Journal of Commerce Headline
No quick recovery seen, says state’s economist Landlords trying to figure out what works in retail today
State’s jobs picture puzzling, but gloomy Retail sales nationwide were flat during August, so Seattle-area landlords and their consultants are trying to figure out how to make properties more attractive to tenants and shoppers.

It’s hard because retail is always in flux, speakers said yesterday during a panel discussion put on by the Urban Land Institute in Bellevue. But these days there are other challenges: Not only are there fewer tenants in the market, retailers want less space than they did in the past.

The region’s retail market was flying high four years ago. At the end of 2007, the vacancy rate was less than 3 percent. The attitude was, “We’ll build it, and we’ll fill it,” said broker Susie Detmer of Commerce Real Estate Solutions, a Cushman & Wakefield Alliance. Two years later, the amount of empty space hit 8 percent, though vacancies are now below 6 percent.

Rick Parks of TRF Pacific, a retail developer and manager, estimated it would take 90 junior anchors and 2,250 small businesses to fill all the empty space in this market.

Rents are down 50 percent in hard-hit markets and in some areas you can’t find any users, he said. But it still costs about the same to upgrade HVAC systems and divide spaces.

The market is relatively robust in core markets, such as downtown Seattle and Bellevue, but dismal in secondary and tertiary markets, Detmer said.

The ULI program looked at projects that are working, such as Melrose Market on Capitol Hill, and revamped suburban neighborhood centers. But as developers of these projects have found, nothing is easy.

Patience required

It took almost a dozen years for Cosmos Development to finish the first phase of redeveloping Lake Hills Village in Bellevue. Cosmos Development is converting the 1950s-era retail center at 655 156th Ave. S.E. into a mixed-use village. Today a King County library branch anchors the center, which also has office space and retail.

When all phases are done, there will be housing, retail, office space and underground parking.

“It’s something that doesn’t happen overnight,” said Oscar Del Moro, executive vice president of Cosmos. “It’s a vision that is only partially complete. Call it a toe in the Jordan.”

Del Moro was not on the panel, but Bellevue Planning Director Dan Stroh was and talked about what the city is doing to help projects like Lake Hills Village.

Stroh said such centers were once the heart of suburban neighborhoods but faded despite the neighbors’ desire to see them thrive. To change them from “dinosaurs” to “dynamos,” Stroh said cities can help center owners think about what kinds of retail would work, and encourage neighbors to support zoning changes that would allow more density at the centers.

Cities also can provide public investments, such as streetscape improvements and public art.

Another similar project in Bellevue is Kelsey Creek Center at Main Street and 148th Avenue Southeast. Developer Nat Franklin gutted an old Kmart and lined up a fitness club to take half the space. A grocery could take the rest. Another building is being renovated, and a new one is being built.

Melrose Market

Scott Shapiro of Eagle Rock Ventures and Liz Dunn of Dunn & Hobbs turned two old auto dealerships into Melrose Market. Shapiro listed three key factors: location, the right mix of tenants, and a reasonable purchase price that allowed renovations and seismic upgrades.

The developers paid about $3 million for the property and spent more than $3.5 million on the makeover. Today, the project is fully leased at the pro forma rates, Shapiro said. Even during the recession there were tenants who wanted a good location.

It also helped that friends, not institutions, invested in the project. Shapiro said the result is their capital is more “patient.” He added the project now has permanent financing from People’s Bank, getting a good rate on a 10-year note.

Panelist Beth Dwyer, an architect with GGLO, said the key concepts to successful retail design are approachability, adaptability, authenticity and community.

Customers need to be able to intuitively see where a store entrance is and how to navigate once inside.

She said it is critical that spaces have “some good bones” when crews renovate them. That way they’ll be more adaptable as retail trends evolve.

Renovations are about more than material selection; they must create flexible spaces. For instance, developers may want to create adjacent space that can work as either office or housing as well as retail.

Authenticity is the “new buzz word,” Dwyer said. It means creating spaces where people want to be. This could entail building a project with sidewalks, “where people can stroll hand in hand” or with umbrellas.

She said “most people want to feel connected,” which is why it’s important to create a sense of community in projects.

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About CraigHillTeam

Specialist in office & investment real estate in Seattle & the Eastside
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