Lifestyle choices: how to target your shoping audience.

The absorption rate of occupied shopping centers in the United States has grown 1.4% over the last year, based on data provided by Reis, Inc., but the Northeast's absorption rate grew by only 1%. Nonetheless, the retail outlook in the Northeast for 2004 remains relatively strong. Reis expects asking rents to increase by 1.7% due to an anticipated decline in vacancy and only modest construction of new shopping centers.

According to the International Council of Shopping Centers, development of major malls is slowing down and the next 12 to 18 months are expected to be somewhat challenging. Vacancy rates in regional malls targeting low-to-middle income shoppers are on the rise, and new types of centers are popping up throughout the country in response to changing consumer shopping preferences. Due to the unpromising forecast for major mall development and the change in buyer behavior, developers are focused on both the high and low-to-middle income sectors of the market. They are experiencing success by researching and understanding today's consumers and introducing different types of products to meet their needs.

For many shoppers at the upper end of the market, demands have changed due to busier schedules, resulting in a willingness to pay more in exchange for selection and convenience. The concept of the "lifestyle center" has become the model for attracting sophisticated, busy professionals.

Lifestyle centers feature a mix of retail businesses and entertainment, along with convenient access and location, attractive landscaping, and generally an increased sense of security and safety as parking areas tend to be smaller and more open compared to the larger lots common in regional malls. In many cases, shoppers can pull up almost directly in front of the store, instead of having to walk through a big, confusing mall. The centers' locations also tend to be more accessible and convenient for many shoppers.

The ICSC has identified shopping patterns that are characteristic of the typical lifestyle center shopper.

Customers primarily come for

* A specific item

* Browsing

* Eating

* They typically visit two to three stores during a visit

* Average amount spent per trip is between $60 and $75

* Average customer is between 25 and 44 years of age.

Lifestyle centers feature many of the high-end retailers that have historically been located in the major malls, such as Pottery Barn, Talbot's, Barnes & Noble, Gap, Chico's, Banana Republic, J. Crew and Coach. Also offered are entertainment and dining, often featuring such restaurants as Panera Bread, The Cheesecake Factory, P. F. Chang's China Bistro and California Pizza Kitchen.

Lifestyle centers represent a tremendous opportunity for developers, investors and retailers, as they attract consumers with significant disposable income. One key to their success is the presence of interesting and unique stores, which will make them popular destinations. The risk with this sector, however, is that too many centers will be built and the market will become saturated.

For other consumers, buying patterns are driven by the sluggish economy, resulting in a quest for more competitive prices and increased value. Discount stores, often referred to as "big-box" retailers, represent another opportunity in retail real estate. Convenience and value are what draws clients to these stores. Wal-Mart continues to dominate by taking market share from smaller retailers. Kohl's tends to have smaller stores and higher s/f performance. Other big-box retailers include Home Depot, Target and OfficeMax. Big-box retailers are often located in "power centers"--two or more big-box retailers or freestanding department stores in the same location. Like lifestyle centers, power centers tend to attract consumers who are there to buy.

Another trend that has started to develop is that many department stores that have historically been the anchors of major malls are moving to freestanding locations. Landlords are motivated by lower rents and the fact that shoppers visiting a free-standing store are more likely to buy, as they come for a specific item.

Upscale malls are still thriving in the Northeast, but what's to become of those malls that are facing functional and economic obsolescence, particularly in the Midwest and Southeast? Many have been repositioned by attracting new tenants or are being transformed into open-air shopping villages, often coexisting with new housing developments. Other property operators are converting unused space into office centers to appeal to large corporations, municipal government organizations, schools or call center operators.

The impact of the Internet on retail real estate remains unclear; however, the use of the Internet has dramatically increased the reach and range of choices customers have in making their buying decisions. The Internet's greatest impact has been in purchasing stocks and in travel. Auctions also account for a large percentage of Internet purchases. A full 35% of respondents to a "DoubleClick" survey reported spending more in online purchases during the holiday season of 2003 as compared to 2002, with an average increase in spending of 33%. Those numbers are expected to continue to grow.

Customers' habits and tastes are always evolving. In this competitive retail real estate market, developers and other commercial real estate professionals who are sensitive to buyers' demands for convenience, value, and sometimes a little novelty, have a strong competitive advantage.

FRED SCHMIDT

VICE PRESIDENT OF BUSINESS DEVELOPMENT

COLDWELL BANKER COMMERCIAL