7.0 EDSR 03-12-2007 - Laserfiche WebLink

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Page 1 of 3 ~~ ~i~, I ~~ ,.,»~ <, t F ~~. ~ a . ~. iCR Vacancy Inched up Absorption Dropped off dramatically Rental Rates Fairly flat Highlights r~ Print this Page Close Window • Neighborhood centers, typically anchored by a grocer or drugstore, saw a major drop in absorption in 2006, as only 288,249 sq. ft. was reported for the year (88,446 sq. ft. in the second half)-a significant drop from 832,807 sq. ft. one year ago. This played a role in pushing the vacancy up slightly to 6.8% (7.7% with sublease space) from 6.5% at mid- year. There are 286 neighborhood centers totaling 18.3 million square feet in our universe. Rental rates were fairly flat at $16.41 per square foot. Only two neighborhood centers are under construction. H.J. Development is building a 25,000-sq.-ft. cen in Elk River which should open in first-quarter 2007. Tenants include Chipotle, Fed Ex/Kinko's and M&I Bank. Also, CSM Corpora ion is developing a $20 million retail center and Residence Inn by Marriott hotel in Plymouth, adjacent to the West Health Campus. The 27,500 sq. ft. of retail will include restaurants Cosi Deli and Caribou Coffee. • Meanwhile, another dozen centers totaling 534,320 sq. ft. are planned with groundbreakings scheduled for 2007. It is becoming more difficult for developers to find good sites for neighborhood centers, and even if they do find an attractive parcel, the entire development process is taking longer and often is complicated by more selective cities, vocal neighborhood groups and more layers of governmental agencies. o One example of a difficult development is Diffley Marketplace in Eagan. Reliance Development Co. planned to build a 72,000-sq.-ft. neighborhood center at Diffley Road and Lexington Avenue, which would be anchored by a 43,000-sq.-ft. Radermacher's Fresh Market and feature additional retail, including a bank, a coffee shop, service and other retail along with a restaurant. Although the Eagan City Council initially approved plans, the project met major resistance from neighbors with concerns, including increased traffic. The city then approved the plan with a condition that prohibits access to the development from a residential street called Daniel Drive. Dakota County, however, will not approve it without this access point, so Reliance's hands essentially are tied. The developer sued the city, but in November a Dakota County judge rejected claims brought by Reliance against the city. Reliance may appeal the decision or choose to build with the conditions imposed by the city. Without access from Daniel Drive, however, Reliance officials claim the site doesn't work for commercial development. Anchor tenant CVS Pharmacy is aggressively expanding in neighborhood centers and continues to look for outlots, as it 'slugs it out" with Walgreen's, which also is performing well and looking for additional sites. • Meanwhile, Snyder's Drug Stores continue to struggle. Snyder's Drug Stores Inc. filed for Chapter 11 bankruptcy protection in 2003, closing eight local stores as part of its restructuring and leaving behind space in neighborhood and community centers. The retailer later completed its Chapter 11 financial restructuring. However, with giant pharmacy chains CVS and Walgreen's, it is difficult for Snyder's to compete. Some speculate Snyder's might be a casualty. It recently closed five more local stores. • Drugstores also are competing with Target Corp., which is launching a line of medical clinics at 18 stores and distribution centers this fall. This strategy returns Target to the in-store clinic business after splitting with Minneapolis-based MinuteClinic, which was acquired by CVS Corp. Target is partnering with Medcor Inc. on these new medical clinics. • Some active in-line retailers continue to expand and look for sites, including Fed Ex/Kinko's; Jimmy John's Gourmet Subs; http://outlook.uproperties.com/PagePrinter. aspx?InstanceID=b 5 dc3 874-23 ec-45bc-975 0-47... 3/7/2007 ~U~tlfi~~llU