Developing Around Consumer Needs
From main-street to the first enclosed malls to community and power centers, to lifestyle centers and mixed use projects where people can work, live and play, developers and retailers have continually collaborated to meet evolving consumer needs in very creative and effective ways. For the past fifteen years or so, one of the most prevalent retail development models we’ve seen in the Twin Cities and around the country followed a fairly typical formula: One or two large format anchor tenants such as Target, Walmart, Lowe’s or Home Depot, with junior box retail and multi-tenant strip and peripheral pad sites for free-standing users.
Today in the Twin Cities, larger sites with good fundamentals are harder to come by. At the same time, traditional general merchandise and home improvement retailers are either on hiatus from expansion or nearing the saturation point in the market. These realities have significantly reduced the number of traditional development opportunities in our market causing retail developers to adopt new strategies.
“Aside from a few of the larger, community scale mixed use developments like City Place in Woodbury and Central Park Commons in Eagan, there just aren’t as many readily developable opportunities for larger projects right now.” “Many developers are buying up smaller, existing centers or under-utilized properties occupying hard corners and redeveloping them into three-and four-tenant strip retail,” explains Mark Kampmeyer, Senior Associate with Colliers International | Minneapolis-St. Paul.
Enter the smaller, boutique-style strip centers. These more active style stores have unique attributes, many driven by national tenants and current trends. Whether it’s a “boutique” look with attractive new facades, a re-purposed bank building, or a few active junior box stores replacing a former bigbox store, they are gaining traction in the Twin Cities. Many of them are driven by national tenants and the latest food trends, such as fast casual, quick service, and other healthy, trendy options.
Small Yet Profitable
With nine properties totaling 94,181 square feet currently under construction and over 620,185 square feet in 56 new strip centers developed since 2014, this trend is noteworthy. “I’ve seen more and more of these pop up throughout the Cities,” adds Kampmeyer. “I think it’s a reflection of resourcefulness from the development community taking advantage of opportunity where they can find it. With historically low cost of capital and strong exit yields, these smaller projects are profitable. It’s hard to say how long this trend will last, but I suspect it’s probably one we’ll be seeing for the next couple of years.”