The national economic downturn hasn’t impacted the greater New Orleans retail market nearly as much as the glacial pace of decision-making on behalf of retailers and investors who have pledged to enter, or re-enter, this still underserved market.
As we close in on the 5-year anniversary of Hurricane Katrina, retail properties in Jefferson Parish and other more affluent parishes have rebounded, while large swaths of Orleans Parish, home to the city of New Orleans, remain retail starved. Many residents of New Orleans East, for example, must still travel 20 to 25 minutes to find affordable basic staples. Exacerbating this problem are relatively high barriers to entry in New Orleans, which is landlocked and has restrictive big-box ordinances. There’s still not a single Target store, Best Buy, Bed Bath & Beyond, PetSmart or Staples in the city and just one Walmart. Making things even more difficult, Orleans Parish continues to lose tax dollars to other parishes.
However, New Orleans is slowly regaining its momentum, with roughly 350,000-plus people back in residence, compared to a pre-Katrina population of about 450,000. Most New Orleans neighborhoods that were not flooded have returned to nearly 100 percent of their July 2005 populations.
Retail real estate is making inroads. We are finally starting to see renewed activity in the investment market with a number of properties selling or going under contract at mid-year 2010.
Fallout in the retail landscape has allowed some merchants and restaurants previously relegated to secondary arteries to better position themselves. Many of those retailers have seized the opportunities to grab vacated big-box and in-line space along highly trafficked Veterans Memorial Boulevard, which spans sections of Metairie and Kenner.
Dick’s Sporting Goods, which recently opened in Baton Rouge, plans a market entry in the New Orleans area and is taking over a vacant Linens ‘n Things locationinMetairie at Lakeside Shopping Center. Ashley Furniture has also moved into a former Linens ‘n Things atElmwood Shopping Center on Clearview Parkway in Harahan. Albertsons has made a slow return to the market that it abandoned pre-Katrina, leasing a vacant Sav-A-Center in Mandeville.
In other new-to-the-market leasing activity, Planet Fitness is opening multiple locations ranging from 12,000 to 15,000 square feet. Also new are the fast-growing Five Guys Burgers and Fries chain and Boost Mobile, which is opening about 5 locations. Fellow newcomers Naked Pizza, Zoës Kitchen and Pink Berry yogurt are leasing several locations ranging from 1,000 to 2,500 square feet each. Just Kids Dental, with its 4,000- to 6,000-square-foot prototype, and fellow dental tenant Kool Smiles, are inking multiple deals. Urgent-care provider Doctors Express has entered the retail market as well.
Expanding aggressively is well-capitalized CVS/pharmacy, which has about 20 area locations and plans several more. The chain absorbed several locations previously occupied by Rite Aid, which has not renewed some of its local leases. Blockbuster is also not renewing some leases as it shrinks its national footprint.
In other leasing and sales activity, Target just acquired a vacant Mervyns big-box property at the Esplanade Mall in Kenner (a Simon-owned property), which it would demolish to construct a 132,000-square-foot store. Goodwill has taken over a former Albertson’s store in the Mid-City neighborhood of New Orleans at South Jefferson Davis Parkway and Tulane Avenue for a retail store and local headquarters. Dollar General has added several locations. Most major banks are adding retail branches around the market. Restaurants, boutiques and other retailers in the tourist hub of the French Quarter have benefited from aggressive convention marketing and to some degree, a mystique created by the New Orleans Saints' Super Bowl victory. The Quarter came back faster than other parts of New Orleans after Katrina and has attracted upscale investment.
Because several big-box anchors closed after national bankruptcies, lease co-tenancy clauses that drove down rents have been triggered. That, in turn, set off loan clauses with lenders, who then choked off center financing to landlords. As a result, instead of handing over copious dollars for finish-out, landlords are instead offering long-term rent concessions of an equal or greater value.
Despite this stifling in financing, a number of delayed new centers are now under development. The new Nord du Lac center just off Interstate 12 in Covington, originally conceived as a 1 million-square-foot lifestyle center, has been downscaled to 300,000 square feet with more of a big-box focus. Kohl’s, Academy Sporting Goods, Hobby Lobby, Dollar Tree, Kirkland’s, Texas Roadhouse and other tenants are now finishing out spaces there.
Stirling Properties announced their long-term plans for the River Chase Phase II, a mixed-use development along I-12 at the intersection of Highway 21. Phase II follows the successful River Chase Phase I anchored by Target, Belk, JCPenney, Best Buy and a number of other national retailers.
Development of the retail portion of the Summit Fremaux mixed-use development slated for Slidell, a city on the northeast shores of Lake Ponchartrain, has been pushed back until at least 2011. Fremaux is still expected to feature at least two department stores, upscale retailers, restaurants and eventually a University of New Orleans research and technology campus.
Carrollton Shopping Center, the strip mall near Xavier University that had to be demolished after Katrina, is being rebuilt with 200,000 square feet of new retail space planned, although a construction timeline has not been set. The center should do well and fill a large void in the Carrollton retail corridor if it can attract high-profile national retailers.
Chalmette, another underserved local community, also got some retail relief. A new 117,000-square-foot Lowe’s Home Improvement on Judge Perez Drive opened early this year, near a Home Depot that was recently rebuilt after its original location was destroyed in the hurricane.
Lakeside Mall, a regional mall located on Veterans Boulevard in Metairie, continues to create retail synergy. The mall did well for most of its life with just two anchors, JCPenney and Dillard’s, and continues to do well with a Macy’s that was added a few years ago. Retailers are paying rents upwards of $30 per square foot at sought-after sites around the mall.
Metairie’s Elmwood Shopping Center, which has transitioned from lower-end discount stores to more fashionable shops such as World Market and Bath & Body Works, is commanding rents in excess of $30 per square foot. Big-box stores throughout the MSA are paying an average rent of $18 per square foot.
Though the specter of the Gulf oil spill continues to loom over the area, it hasn’t affected tourism to the degree many feared. Opportunities to serve this resurgent population with retail, restaurants and services remain numerous.
— Kirsten E. Early, CCIM is an X Team International partner andpartnerat SRSA Commercial Real Estate, Inc. in New Orleans.