Retail developments in 1999: bigger is better.

The up-cycle appears to have ended, as stock prices are depressed and most REITs are selling at a fraction of their 1998 high. Investors who were once purchasing CMBS securities, and thereby financing real estate projects, are now putting their dollars into Treasuries. This has created a general sense of nervousness in the real estate market, as many Cassandras predict doom for 1999.

However, adversity usually creates opportunity, and the current situation is no exception. Despite the market's downslide, retail spending is stronger than ever, which bodes well for continued retail expansion in 1999. This growth will be marked by three trends that have gathered steam in 1998: the increase in mergers and consolidations in retail; the redevelopment of traditional malls into power centers; and the development of an entertainment component in shopping centers.

Mergers and Consolidations

1998 has witnessed mergers in all areas of business, from health-care to banking, and retail is no exception. In order to keep pace in today's competitive environment, big box retailers - from supermarkets to office superstores - are buying out smaller chains and consolidating. In retail, bigger is better: the more stores a company has in one area, the more money the company can save by cutting marketing and distribution costs. Some recent examples include Ahold's purchase of giant foods in Maryland and Petsmatt's merger with Petstuff.

Revamping Malls for the Millennium

Consumers have continued to search for alternatives to traditional malls in 1998, which has increased the popularity of big box stores. These stores are developed in power center clusters, which require a range of 30 to 110 acres. Because it is difficult to find this amount of land in the crowded Northeast, one trend that is sure to continue next year is the redevelopment of smaller and functionally obsolete shopping malls into retail power centers. Starwood Ceruzzi employed these tactics this year in our redevelopment of Gardiner Manor Center in Bay Shore, NY.

That's Entertainment

Developers have known for years that there is a natural synergy between shopping and entertainment, and food courts/movie theaters are commonplace in the traditional mall. To increase the pleasure of the shopping experience, power center developers are getting in on the action, and incorporating new entertainment venues into their shopping centers. However, these centers not only include restaurants and theaters, but more "exotic" amenities such as amusement parks, ice rinks, bowling alleys, driving ranges and play zones. Customers will shop longer if they have a restaurant or entertainment area on site: kids can ride the roller coaster, and their parents can shop at Staples and Target.

What is the Future of Retail?

Bigger is better, as consumers continue to demand more entertainment and big box stops in shopping centers. Retail stores will also grow "bigger" - in market share through mergers. Despite the fickle fluctuations of Wall Street, retail development will continue to be strong through 1999.