December of this year will mark the 30th anniversary of the movie “Wall Street” and the introduction of the antihero, Gordon Gekko. In that movie, Gordon delivers the iconic “Greed is Good” speech to the shareholders of a besieged paper company.
While things in the end did not turn out well for Gekko due in large part to his greed, the undertones of that speech are uncontentious: Performance and adaptation will come about when there are strong incentives to evolve. The evolutionary spirit of retail real estate is taking shape here in Hampton Roads and great things are happening.
Grocers Take Battle Positions
The Hampton Roads grocery industry has evolved over the years in large part due to fierce competition from Aldi and Lidl. These two German-based competitors will collectively bring over 20 new locations to the region, and bring with them a new no-frills experience with staple grocery items at a lower price point. Additional grocer announcements in the market include the first Wegmans that committed to a site near Town Center of Virginia Beach, Kroger’s four new developments throughout the region (although a recent freeze in capital projects have stalled those) and Walmart’s recently opened store in Virginia Beach.
Jeff Fritz, CBRE | Hampton Roads
The large military presence in Hampton Roads also means contending with a number of tax-free shopping options via commissary or military exchange. Food Lion and Farm Fresh have a long history in this market and are holding the market leader positions in terms of real estate with 79 and 34 stores, respectively.
Options abound for Hampton Roads consumers, with 14 name brand grocers to choose from in the market once Wegmans opens to the public. All this means is something has to give, and many believe the older, non-renovated stock will be vulnerable to the new competitors. Forward-thinking landlords are embracing the change now and evaluating assets for backfill opportunities and right-sizing options.
Backfill Opportunities
Existing real estate is being reimagined and evolving into new projects by developers as well. The biggest evolution has been the department store bankruptcies that created opportunities to make obsolescent boxes into something relevant again. Take for example the departure of Macy’s from three Hampton Roads locations. Those vacancies helped transform the massive retail boxes into mixed-use projects for the respective malls.
The vacant 209,000-square-foot Macy’s box in Norfolk has been redesigned by the City of Norfolk with numerous exterior improvements and an interior reconfiguration to become an office space housing Movement Mortgage and Optima Health. The vacated Macy’s in Hampton has been razed by the Tabani Group to make way for a higher-end hotel and an upscale multifamily project to complement the existing retail.
New Development
There has been a surge in retail redevelopment in downtown Norfolk that can be attributed to a conversion of historic and outdated office buildings into multifamily rentals to create a much-needed population base. Downtown Norfolk’s Waterside recently evolved from an antiquated 1983-vintage marketplace to a food and entertainment hall. The 135,000-square-foot Waterside District is a public-private partnership between the City of Norfolk and the Cordish Cos., and boasts 120 varieties of beer on tap and 260-plus menu options between the 14 restaurants.
The pop-up shopping experience has also not missed downtown Norfolk. Selden Market, a local arcade that fell victim to fire, is now described as an innovative space for entrepreneurs to develop new street-level business ideas. The market provides a low-risk environment with short-term leases, a supportive development program and a community atmosphere that fosters learning and growth for new retailers.
Along the Norfolk/Virginia Beach border, a former golf course was reimagined by Simon Property Group as a new 332,000-square-foot Premium Outlet project with an impressive lineup of brands. The development boasts a multitude of outdoor spaces with adult and kids games, as well as live music stages for shoppers to linger and enjoy the Hampton Roads climate.
Adjacent to the Simon outlets, IKEA recently committed to its second retail investment in Virginia with plans to build a 331,000-square-foot store that is slated for a 2019 opening.
Capital Markets
The retail real estate investor has taken notice of the region’s evolution as well. The number of retail investment deals is only down slightly in 2017 from 2016; however, the average deal size in 2017 is up over 10 percent. A few larger transactions will push that number up further if closed this year.
Investors now, more than ever, closely review the tenant mix of an existing shopping center. For the investor there is an intense focus on what’s new in retail, and blending experiential activities with the consuming of goods and services. These focus points are front and center when evaluating deals as they help drive traffic, consumer dollars and leases to shopping centers, resulting in a price premium for investors.
— By Jeff Fritz, Vice President of CBRE | Hampton Roads. This article was originally published in the November 2017 issue of Southeast Real Estate Business.