Lack of Sales Tax Drives Retail Demand and Development Activity in Delaware

The biggest news about Delaware retail is the expansion of Christiana Mall in Newark, Del., and an equally ambitious redevelopment of The Colonnade at Christiana, which is adjacent to the mall.

Everyone in the Mid-Atlantic knows that Delaware does not have retail sales tax, thus the driver of Christiana’s expansion and the new projects is simply shopping demand and a geographically dense population base that draws from more than 20 million people in nearby states including Pennsylvania, Maryland, New Jersey and even New York.

It’s one thing to save $4 when you spend $50 but the money gets real when you can save $80 on a $1,000 shopping tab. (This example is based on 8 percent sales tax that you’d pay in Philadelphia, which is about 30 minutes from Wilmington and has more than 4 million people in its MSA).

Christiana’s expansion to 1.1 million square feet and the adjacent 915,000-square-foot The Colonnade is made possible by construction improvements to the I-95 and Route 1 interchange that will give drivers and shoppers better access to the existing and refurbished retail centers.

The Colonnade was previously called the Christiana Fashion Center and it is being redeveloped by Frank Acierno and his company, Allied Properties.

Christiana Mall is owned by Chicago-based General Growth Properties, which is adding to its existing center. The property is anchored by Macy’s, JC Penney, Costco, Target, Barnes & Noble, Forever 21, The Cheesecake Factory, and H&M and includes a host of smaller shops. Outdoor retailer Cabela’s is new to our market and will be anchoring the expansion of Christiana Mall with a new 109,000-square-foot store. The expansion also includes a new 17-screen Cinemark theater and Nordstrom Rack.

An estimated 50 percent of Christiana Mall shoppers come from out of state to enjoy the retail-tax-free status in Delaware. As a result, average sales in the food court run a whopping $1,380 per square foot, according to mall’s owner, compared with average sales for other food courts at $823 per square-foot, according to the International Council of Shopping Centers.

General Growth considers Christiana Mall to be one of its best-performing assets in the country.

The region’s economy is healthy enough for a variety of new projects. For example, local developer Joseph M. Capano is developing a mixed-use project called Brandywine Pavilion on Naamans Road, which connects U.S. Route 202 with Interstate 95. It will have 36,000 square feet of office space, 18,250 square feet of retail and 18,250 square feet of corporate apartments.

Other noteworthy trends with Delaware retail are:

  • Bifurcated markets: The competition is fierce for available Class A space, whereas B and C properties can take months and months to find tenants.
  • Rents are up in prime submarkets Concord Pike, Main Street (Newark) and Kirkwood Highway.
  • Sussex County, with its beach communities, has matured and evolved into a year-round residential area which has spurred lots of retail development in the last 10 years, primarily on the Highway 1 Corridor.

The overall vacancy rate in New Castle County is approximately 7.5 percent. This number combines community centers, neighborhood centers and power centers. Statewide, overall vacancy is nearly 10 percent.

The Concord Pike corridor starts in Wilmington and goes north all the way to Bangor, Maine. The section from Wilmington to Southern Pennsylvania, which includes Market Square and Brandywine Town Center in Wilmington, is one of the hottest submarkets in the state. Both properties are owned by the Arcadia Realty Trust, and current rents generally start at $25 and go up from there. Shop space garners some of the highest rents in Delaware at $45 or greater per square foot.

Demand along the Concord Pike Corridor is so high that a gas station on 0.37 acres recently sold for $850,000, with the buyer assuming responsibility for any environmental issues associated with redeveloping the site.

The next hottest submarket is Main Street in Newark, which is home to the University of Delaware and sports rents north of $30 per square foot. It wasn’t long ago that a retailer could have secured a rental rate in the low-$20s and even the high teens in this college town.

The Class A markets typically have vacancy of only 5 percent or so, and prime locations are being bid up. In contrast, B and C space is difficult to market, demand is sluggish and the vacancy rate is closer to 15 percent, on average.

For years Sussex County was called “slower Delaware” because of its farms and beach resorts. In recent years, the southern section of the state has become a destination for baby boomers to retire and a plethora of retail space has been built up to support the year-round population.

Outside of core shopping centers and malls, retail expansion is mostly from food, especially quick service retailers such as Dunkin Donuts, Starbucks, Subway, Jake’s Wayback Burgers, the other burger shops like Five Guys and independent restaurant operators.

— By Joe Latina, Principal, Patterson-Woods Commercial Properties/CORFAC International. This article originally appeared in the January/February 2014 issue of Northeast Real Estate Business magazine.

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