Major retailers looking to retrofit existing stores in Milwaukee area.

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At close of the first quarter of the year, the Southeastern Wisconsin retail vacancy rate totaled 10.4 percent, up 1.4 percent from a year ago. The growth in the greater Milwaukee retail vacancy rate was primarily driven by the closings of several large-format retailers over the last 6 months.

Changes in the retail environment have caused a shift in the Southeastern Wisconsin retail real estate market. More retailers are looking to existing developments or vacant boxes to expand as the tide of new development wanes. There are several major retailers looking to retrofit existing stores rather than build new boxes.

Despite the negative news and stores closures, the Southeastern Wisconsin market is still experiencing some significant retail activity:

• Wal-Mart is expanding and/or remodeling several area stores to include more grocery items. These stores include Southgate, East Capitol Drive, Midtown, Brown Deer Road, Franklin and Delafield. The retail giant is also moving forward with plans for new stores in Muskego and Waukesha. A new Wal-Mart Supercenter and a Sam’s Club will open at Somers Market Center this summer in Somers, which is located in Kenosha County along Highway 31.

• Target has opened two new stores at Prairie Ridge in Pleasant Prairie and the Shoppes at Wyndham Village in Franklin. The retailer has a third new store scheduled to open later this year that will anchor the Shoppes at Fox River in Waukesha.

• Pick ‘n Save is relocating several of its Milwaukee-area stores into new formats. The grocer recently announced plans to relocate its existing store at 76th Street and Good Hope Road into a 102,000-square-foot former Home Depot shell. There are new Metro Market stores, which, like Pick ‘n Save, come from Roundy’s Supermarkets Inc., planned for the Brookfield and Mequon markets, and new grocery store will also open later this year at the Shoppes at Fox River in Waukesha.

• Kohl’s recently opened a new location in the Burlington market. The store is part of a new 140,000-square-foot development that is also anchored by a relocated Pick ‘n Save store.

• Woodman’s Market has opened its first Milwaukee-area store — its 240,000-square-foot warehouse concept — in Oak Creek, and has recently announced plans to build an additional store in Menomonee Falls in 2010.

• Redevelopment activity continues along Mayfair Road. A new Pick ‘n Save store is under construction on the former Renner Automotive site, while the 4-acre Ewald Automotive site was recently purchased for $5.7 million. Plans for the Ewald Automotive site call for a new a 35,000-square-foot Dave & Busters entertainment center.

Other active retailers in the market include Aldi, A.J. Wright, AT&T, Citi Trends, CVS/pharmacy, Dick’s Sporting Goods, Dollar Tree, Gamestop, Get It Now, Goodwill, Maurices, Petco, Petsmart, Rogans Shoes, TJ Maxx, ULTA and US Cellular. The auto parts category is also very active, with Advance Auto, Auto Zone, Napa Auto Parts and O’Reilly Auto Parts all looking to add or reposition stores in the market.

There is also significant activity from non-traditional retail users such as automotive services, entertainment centers, health clubs and massage/wellness centers. Active users in these categories include Dave & Busters, Firestone, Anytime Fitness, Snap Fitness and Gold’s Gym.

Active restaurants include A&W, Buffalo Wild Wings, Chili’s, Five Guys Burgers & Fries, Flat Top Grill, Jimmy Johns Gourmet Subs, Sonic, Subway, Taco Bell, Tazino’s Pizza and Salad Bistro, and Qdoba. Flat Top Grill recently opened its first Milwaukee area location at the One Mayfair Place development in Wauwatosa. Sonic recently opened its first Wisconsin location at the end of February along the Miller Parkway corridor in West Milwaukee.

Retailers and restaurants that have closed stores in the market over the last several months include Circuit City, Linens ‘n Things, The Home Depot, Kmart, Steve & Barry’s, Sportman’s Warehouse, Big Lots, Workwear Depot, Tumbleweed, and Outback Steakhouse. Expect retailers such as Aldi, Burlington Coat Factory, Gold’s Gym, Goodwill, Hobby Lobby, and Pick N Save to continue to take advantage of these market conditions in an effort to expand into areas where, until recently, very few opportunities existed.

This trend is occurring along Bluemound Road, which is Milwaukee’s most active retail corridor. There are several junior anchor vacancies, measuring 15,000 square feet and up, that have created opportunities for retailers to expand along this corridor. Aldi recently opened in the former Gander Mountain space and Dollar Tree recently signed a lease to occupy space in the same center. A new Rogans Shoes store was built on the former Childrens World daycare center site. There are several other retailers looking to reposition themselves along Bluemound Road in the spaces vacated by retailers such as Circuit City, Comp USA, Lay Z Boy, and Linens ‘n Things.

For the remainder of the year, expect some of the vacant, large-format retail space to be absorbed. New construction will continue to decline as speculative development has come to a halt and retailers continue to look to existing inventory for expansion opportunities. Both of these trends should cause vacancy rates to recover over the next year.

— Peter Glase is a first vice president in the Retail Properties Group in CB Richard Ellis’ Milwaukee office.

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