7.0 EDSR 03-12-2007 - Laserfiche WebLink

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Page 1 of 2 Print this Page Close Window ? ~_ '~ .~ ,. ~ - .. Retail Pipeline Still Strong, Market Increasingly Affected by Housing Slowdown Retail absorption remains strong, and fierce competition among big-box retailers continues; however, small-shop retail demand in outlying markets is slowing due to the residential slowdown • Reacting to pent-up demand, big-box users are pursuing highly sought-after redevelopment, infill development sites • Developments are taking longer as cities and neighborhood groups become more discriminating when reviewing proposals and there are more levels of bureaucracy The Twin Cities retail market experienced yet another record-setting year in new construction and absorption in 2006. The market reported approximately 3.1 million square feet of absorption in the past 12 months, and the vacancy at year end was 5.8% (6.3% with sublease space). Big box-anchored community centers once again were the driving force, reporting 1,901,280 sq. ft. of absorption in the second half alone-twice that of 12 months ago. Community centers finished the year with 2,556,844 sq. ft. of absorption; no other retail product type even came close. This strong activity is reflected in community centers'vacancy rate of 2.9%, possibly the lowest historical vacancy ever. Seven community centers totaling 2.34 million square feet are under construction with another 1.37 million square feet planned. Big Boxes Fuel Growth Development is being fueled by big-box users (some with their "super" concepts)-including Target, Wal-Mart, Lowe's, Cub Foods and Home Depot-seeking to gain strategic positions in the marketplace. While intense competition among big boxes will continue throughout 2007, demand for small-shop retail construction in outer-ring markets will soften as small-shop tenants feel the impact of the residential slowdown. As big boxes push further out to compete for market share, there's not yet enough daytime population in some outlying markets to support small shops. Prudent developers will scale back small-shop space. Retail Market Correcting Itself As a result of the housing slowdown, the retail market will undergo a correction from the past four years of record-setting construction and absorption. It will "normalize." While it has been alandlord/developer's market, there will be an equilibrium shift and retailers will gain some leverage. Redevelopment Remains Hot While the housing slowdown will curtail some "cornfield" development, inner-ring redevelopment is attractive as retailers seek to penetrate desirable, densely populated markets. Target is redeveloping its Midway store and acquired the Four Seasons Sheraton in order to build a SuperTarget. Target also did "scrapes," where it demolishes existing stores to build SuperTargets, in West St. Paul and Roseville and has plans in Edina and Burnsville. Tri-Land Properties acquired two well-positioned, yet outdated Cub Foods stores in Fridley and Burnsville and likely will raze them and build new Cub stores or use existing structures. Cypress Equities plans to raze a movie theater in Edina to build retail and condos pending a court hearing. Haugland Company is redeveloping the southwest corner of 50th and France in Edina into retail and condos and scraped existing buildings. Plans in Eagan call for demolishing several buildings, including Cedarvale Mall, to develop retail, entertainment and offices. Development Is More Difficult, Time-Consuming While it's common knowledge that redevelopment is complicated, expensive and time-consuming, even developing conventional sites today is taking twice as long. Discriminating cities, vocal neighborhood groups and more layers of governmental agencies are complicating the process. One example of a development impacted by a neighborhood is Diffley Marketplace in Eagan where Reliance Development planned to build agrocer-anchored center. Although the City Council approved the plan, it was met with strong resistance from neighbors with traffic concerns. The city then approved the plan with a condition that prohibits access to the development from a residential street called Daniel Drive. Dakota County will not approve the plan without this access point, so Reliance's hands are essentially tied. Franchises Experience Slowdown http://outlook.uproperties.com/PagePrinter.aspx?InstanceID=340d9a3e-e688-4fc 1-bye 1-472... 3/7/2007