November 1, 2013
Retail Market Making Rumblings of Recovery
Atlanta Business Chronicle
By Amy Wenk and Doug Sams, Staff Writers As apartment towers start to rise and rumblings continue about office development, retail construction in Atlanta also is gaining momentum for the first time since the downturn. Almost 1 million square feet of new retail space is in the works, according to new data from research firm Marcus & Millichap. And, three of the largest mixed-use projects in the country are now underway, all set to open next year — Ponce City Market in Old Fourth Ward, Buckhead Atlanta and Avalon along Georgia 400. The recovery of retail was the backdrop of the International Council of Shopping Centers (ICSC) Southeast Conference, held in Atlanta Oct. 28-30. “The consumer confidence in spending is going up,” David LaRue, ICSC chairman, said during an Oct. 29 presentation. “Retailers are seeing growth. ... And development is starting to come back, mostly in the form of redevelopment of existing centers, but some new development in strip [centers] and outlet [malls].” The improvement comes after more than four years of tepid growth that stymied construction across Atlanta. But employment gains, particularly in the professional services sector, and the slow recovery of the housing market have propelled new apartment projects. Retail has been slower to rebound. But, this year the three big mixed-use projects gained speed, including Buckhead Atlanta, an 8-acre assortment of posh retailers, hip office space and luxury residential towers at Peachtree and East Paces Ferry roads. The catalyst was increased leasing deals that helped drive occupancy. Leasing velocity allowed Buckhead Atlanta developer OliverMcMillan to secure a $167 million construction loan this summer, led by PNC Capital Markets LLC, the largest construction loan originated for a real estate project outside of Manhattan. It wasn’t easy, said Mark Sixour, senior managing director of Atlanta-based Holliday Fenoglio Fowler L.P. “It was a very high pre-leasing requirement,” Sixour told capital markets executives at the ICSC conference. The only luxury retailer with a store at Buckhead Atlanta has seen strong sales, he added. Hermés, a French luxury retailer known for scarfs, handbags and jewelry, is achieving about $2,400 a foot at its temporary location, Sixour said. It will move into its new Buckhead Atlanta store next year. OliverMcMillan earlier this year landed the corporate headquarters of Spanx Inc. The company will also put a flagship retail store there. “I think we are on fire,” said Ron Pfohl, director of leasing for North American Properties, which has revamped Atlantic Station with a new tenant base and restarted the stalled Prospect Park mixed-use project in Alpharetta, renaming it Avalon. The $600 million mixed-use project secured a $126.5 million construction loan this summer. In the last 30 months, North American has signed 83 new leases between the two projects. “That tells you things are happening in the market,” Pfohl said. “We are expanding now.” The activity has improved the market for investors. As vacancy falls, asking rents are expected to reach an average of $14.41 per square foot in 2013, a 2 percent improvement. That comes after rents fell 3.1 percent last year, according to Marcus & Millichap. That’s giving investors more confidence. Earlier this year, The Sembler Co. sold The Prado, one of its key assets in Atlanta. But, as the market has improved, Sembler is looking once again for opportunities to buy grocery-anchored centers, said CEO Ron Wheeler. “I think things are looking up, but I don’t think it’s going to be a boom.” Atlanta continues to reflect that the national retail landscape is changing. Today, regional mall construction across the United States has essentially shut down, and mall operators are dealing with new pressures to keep their projects relevant. Retail centers today have “got to be an amazing experience,” George Banks, vice president of Paces Properties Inc., said at the ICSC conference. Paces is underway on Krog Street Market, the $70 million redevelopment of Tyler Perry’s former Inman Park studio. Most of the capital for new projects has been focused on the intown markets, especially mixed-use developments that feature new apartments. “By and large it’s infill development,” said Bill Brown, president of Halpern Enterprises Inc.