Retail real estate roars back

Twin Cities retail real estate continued its rebound from the recession in the first quarter, with vacancies shrinking to the lowest levels since 2008 and new construction abounding, a new report showed.

The continued improvement in the overall vacancy rate was almost entirely due to the extremely strong leasing activity in and around bustling regional malls such as Southdale, Eden Prairie Center, Ridgedale, Maple Grove's Arbor Lakes area, Woodbury and Rosedale.

"The interest in those trade areas is really robust. It shows that we're continuing to recover from the recession, with consumers more willing to spend the money they earn on restaurants, shopping, and maybe a luxury item or two," said Tom Palmquist, a senior vice president with Welsh & Colliers International, which issued the vacancy report.

The findings showed a metrowide first-quarter vacancy level of 5.2 percent, down from 5.4 percent last quarter and from 6.2 percent at the end of 2012. During the height of the recession in 2010, retail vacancies reached as high as 7.3 percent.

Retail real estate owners who aren't positioned directly near regional malls are finding much tougher sledding, bringing down the overall numbers. Downtown Minneapolis is limping along with a 14.4 percent retail vacancy rate. Maplewood is facing a daunting 9.4 percent rate, while West St. Paul's South Robert Street trade area is struggling at 6.7 percent.

The extreme bifurcation is marking out clear geographical winners and losers — successful trade areas keep attracting the newest and hottest retailing concepts while those off beaten paths are recovering much more slowly.

Still, the Twin Cities as a whole is gaining steam as a destination for the expansion of popular "fast-casual" restaurant brands such as Chipotle and Noodles & Company, as well as new concepts including PizzaRev and Pieology, Palmquist said.

"You're seeing these guys do things like tear down old gas stations and anchor new, smaller buildings," she said.

The grocery sector is also spurring new construction. Meyer's group landed a prototype of Lunds and Byerly's Kitchen to anchor the first phase of the Promenade of Wayzata development, which opened in the first quarter. Expansions by local food co-ops are sparking construction activity as well — new editions of the Wedge, Seward Community Co-op and Lakewinds Natural Foods are all coming this summer.

In Richfield, the new Lakewinds co-op, set for a June opening, is the first key element in an effort by the Cornerstone Group to transform the former Lyndale Garden Center into a new "downtown" for the suburb. Co-op General Manager Dale Woodbeck, speaking as construction workers installed new checkouts, display cases and a Peace Coffee barista counter behind him, said the growing popularity of locally grown, organic foods is what's behind the expansions.

"Being a suburban co-op, we feel there is a lot of market opportunity for us in the sphere that we inhabit," he said. "I talk with the general managers of the Wedge, Seward, and the other co-ops, and I know the market is now such that people are more willing to spend some of their disposal income on upgrading what they feed themselves and their kids.

"They're concerned about how the animals are raised and treated, and where it's grown … that intersection of organic and local."