Long a workhorse of retail real estate, most neighborhood shopping centers in the Twin Cities are thriving as the economy perks up.
Last year saw a healthy uptick in demand for space in the centers, which span about 20 million square feet locally, and a recent report from Cushman & Wakefield/NorthMarq predicts rental rates could double in 2013. The Bloomington-based firm predicts that the roughly 300 neighborhood centers in the Twin Cities will serve as a stable cornerstone in the local commercial real estate market this year.
Usually anchored by a grocery store and inhabited by nail salons, dry cleaners, sandwich shops and burger joints, these ubiquitous strip centers lack the pizazz of the Mall of America, the Dales or the quaint feel of Main Street-like retail settings. But they have services that shoppers need — with parking — and often serve as a good indicator of consumer trends.
"A neighborhood center serves just that — the neighborhood, usually within a three-mile radius," said Deborah Carlson, director of retail brokerage services for Cushman & Wakefield/NorthMarq.
These days, several types of tenants are fueling the growth, including frozen yogurt outlets, yoga and pilates studios, no-frills or specialized fitness centers and fast-casual restaurants. Lately, many speak to consumers' seemingly divergent need to get fit, eat right, and devour cheeseburgers.
"Over the years you've seen a lot of uses come and go," in neighborhood centers, said Dave Brennan, a professor of marketing at the University of St. Thomas. "Video stores? Well, they're toast now. It's a constant evolution."
In the past two years, new self-serve frozen yogurt outlets have besieged nearly every corner of retail ranging from the Mall of America to skyways to more-traditional locations in neighborhood centers. These stores, many of which are franchise operations, champion themselves as family-friendly purveyors of affordable, healthy treats.
CherryBerry, an Oklahoma-based chain, has aggressively expanded by opening 30 stores throughout Minnesota with competitors Yogurt Lab, Cool Cups Yogurt, FreeStyle Yogurt, Pinkberry, Menchie's, Freeziac and others joining the frozen fold. "The first wave [of yogurt shops] that came through did well," Carlson said. But as the market grows increasingly saturated, "the weaklings will go away," she added.
Likewise, smaller-footprint fitness studios, such as Anytime Fitness, Revolutions Cycle + Fitness Studio, Planet Fitness and Steele Fitness, all expanded with new shops in the second half of 2012, not to mention openings by specialized outfits CorePower Yoga and Viverant.
Carlson says the fitness trend in local neighborhood centers has been "going on for a while as we get older. People trying to find [exercise] solutions that work for them. There are some people who will pay for a membership at a place like Life Time Fitness, but then you have people looking to do something at a lower ticket price or something different, and that's where these smaller studios and specialized places come in."
Likewise, the "fast-casual" restaurant sector, which features family-oriented dining options such as Which Wich, Smashburger, Five Guys and Jersey Mike's, continue to open shops in neighborhood centers. As Carlson explains it, these eateries attract families who may want an option that's a step above traditional fast food. "People are thinking, 'I don't want McDonald's, and I don't want to pay for Pittsburgh Blue, but I do want my family to have something decent.' "
Still, some neighborhood centers didn't survive the economic downturn gracefully. As consumers cut back on services such as manicures and dry cleaning, some small shops shuttered, and even some grocery stores retrenched. In some cases the traditional grocery anchor has been replaced by mega-drugstores like CVS and Walgreens that serve as de facto convenience stores by selling basic foodstuffs.
The centers that did survive were likely located "in higher-potential locations on major highways and arterial roads," said Brennan, who is also co-director of St. Thomas' Institute for Retail Excellence. Others have been repurposed into offices, particularly medical offices, or even torn down for other kinds of development.
Still, a recent report by the research firm IBIS World indicates that, while far from a full recovery, "a recent rise in credit access is slowly encouraging retailers to open additional locations in strip malls while interest rates stay low." Many retailers are expanding their marketing reach in previously untapped markets by franchising their operations, the report states.
In the next five years, single-location full-service restaurants, pizza restaurants, jewelry stores and health stores are expected to add a significant number of new stores, according to IBIS. This is because consumers are increasingly spending more money on these amenities as their disposable incomes rise in an improving economy.
A new iteration of the old model involves grocers anchoring mixed-use projects that also feature a housing component. That's the case at the Promenade of Wayzata, a $225 million project that includes senior and luxury housing, a hotel, a Lunds store and smaller retail tenants. A big component to the plan involves walkability to downtown Wayzata, says Steve Bohl of Bohland Development Inc., which is developing the luxury housing portion of the project.
"People are looking for convenience" at these centers, he said. "They like the ability to walk right next door to the store from where they live."