Downtown Minneapolis retail evolves as residents move in

Come Aug. 1, residents will begin moving into Nic on Fifth, a $100 million luxury apartment tower on the northern flank of Nicollet Mall.

The 253-unit building is part of a continuum of residential development expected to stretch toward the Mississippi River — rising up from an unattractive panorama now largely made up of surface parking lots.

As hundreds move into upscale housing on or near the northern stretch of Nicollet Mall, they'll have a heavy influence on the often-challenged retail market of downtown Minneapolis, where change is already afoot.

"Any time you bring more people downtown, it will have a positive impact," said Bryan Moeller, manager of the R.F. Moeller jewelry store in Gaviidae Common I. The demographics of new downtown residents will bolster his business, he said: Affluent empty-nesters can well afford new jewelry, and millennials may be on the hunt for engagement rings.

The mall's three major shopping centers — Gaviidae Common I and II and City Center — are all being repositioned by their relatively new out-of-state owners. At the same time, Saks Off 5th confirmed this month that it will close its department store at 655 Nicollet Mall, though the retailer said it may move elsewhere downtown.

In general, once the population in an urban area nears the 40,000 to 50,000 mark, "you're at a tipping point in retail development or retail rebirth," said Liz McLay, a Minneapolis retail consultant working with San Francisco-based Shorenstein Properties, owner of City Center. At that point, a city's core becomes more of a 24/7 destination as opposed to a 9-to-5 weekday locale, she said.

The population of downtown Minneapolis now stands at about 37,000.

Experts say downtown is fortunate to already have a Target store at 9th Street and Nicollet Mall and a new Whole Foods grocery on the 200 block of Hennepin Avenue, plus Lunds stores nearby in Northeast and near Loring Park. "Fifteen years ago, you couldn't beg, borrow or steal to get a grocery store downtown," said Steve Cramer, president and CEO of the Minneapolis Downtown Council.

The restaurant scene on the southern end of Nicollet Mall and in the Warehouse District and North Loop appears to be robust, too. The next step in the shopping continuum typically involves attracting "service-oriented" retailers — such as dry cleaners, drugstores and hair salons — as well as fashion-oriented local boutiques and then national retailers.

A good litmus test for retail along the northern stretch of Nicollet Mall is Gaviidae Common II, the former Neiman Marcus wing that is being renovated by KBS Real Estate Investment Trust III.

The top two floors of the mall, which include the former food court, are being converted into office space. The skyway and street levels will be devoted to convenience- and service-oriented retail, said Sonja Dusil, senior director at Cushman & Wakefield/NorthMarq, who is leading the leasing effort. While Ann Taylor and Talbots have departed, the D'Amico restaurant and Caribou Coffee outlet will remain.

Retail consultant Michael Berne said success along Nicollet Mall isn't dependent on any one group of consumers. "While additional rooftops are an important part of the equation, one or two new towers only represent a tiny fraction of what a retailer would need to sustain the relatively high occupancy costs of a Nicollet Mall location," he said.

On top of the anticipated surge in rental development, which will also include the 30-story 4Marq upscale apartment tower, the population of office workers on northern Nicollet Mall also will increase in the next two years.

The former Neiman Marcus building will become home to 350 CenterPoint Energy employees by early 2015. Opus has already begun construction of a headquarters expansion for Xcel Energy Corp. on the 400 block of Nicollet Mall, a stone's throw from the recently converted Soo Line Building City Apartments and its skyway connection to downtown buildings.

Plus the historic 510 Marquette Building, still undergoing renovation, has attracted the Campbell Mithun advertising agency as an anchor tenant. In addition, the expansion last week of Metro Transit light rail could lure more shoppers to downtown.

City officials have partnered with the Downtown Council to study the central business district's retail landscape, with hopes of attracting future tenants.

"We're trying to think about who the potential shoppers are for Nicollet Mall, and the retail available now fits together with the Hennepin Avenue entertainment district and the emerging retail markets in the North Loop and Northeast," said Cathy Polasky, the city's economic development director.

But Minneapolis consultant Sam Newberg, co-founder of the streets.mn blog, said as long as the city's skyway system exists, it will draw shopping away from the street. In addition, Newberg says, there aren't enough smaller-scale storefronts to sustain healthy traffic along the mall — retail outlets such as City Center are too "inward facing."

Either way, the residential surge will continue in years to come along the north end of the mall — which was largely leveled in the 1960s "slum-clearing" frenzy. Along with Nic on Fifth, Opus also owns the so-called Ritz block along Nicollet Mall, now a parking lot across from the Minneapolis Central Library. Dave Menke, president of Opus Development, says the firm is in the "early planning stages" for a residential tower that would span 30-plus stories. The remaining portion of the block would be devoted to 500,000 square feet of office space, he said.

The city is expected to issue a request for proposals for the former Nicollet Hotel block at 200 Nicollet Mall. And developer Jim Stanton is proposing 360 condos for a site at Washington and Hennepin Avenues.

Laurie Lin, owner of boutique bakery Cocoa & Fig, said she's already noticed an uptick in business at her tiny outpost of sweets in Gaviidae Common I. "If you have more people, that's a plus," she said.

Janet Moore • 612-673-7752