Redevelopment Drives Much of the Retail Story in Pittsburgh

Pittsburgh retail can be summed up in three words: location, location, location — and the original definition of great real estate has never been more pronounced than it is today in the Pittsburgh retail market. According to some publications, retail and retailers appear to be struggling almost everywhere for many different reasons, including online sales, too many stores, market conditions and oversaturation of product. However, as of year-end 2016, CoStar indicated that the overall Pittsburgh retail market occupancy rate was 96.8 percent.

Pittsburgh has natural barriers to entry for retail due to its topography, which includes numerous hills and valleys, making it often times impossible to build a “newer, bigger, better” retail property across the street. As a result, many developers have successfully repurposed older centers through adaptive reuse, converting them in keeping with the latest and greatest retail trends. Other older centers have successfully withstood the test of time, replacing outdated retail concepts with today’s current concepts at significantly lower costs than building a new center.

Claudia Steeb, HFF

Claudia Steeb, HFF

Adaptive reuse of Pittsburgh retail started decades ago when the May Company relocated Kaufmann’s Department Stores from four freestanding locations into the dominant regional malls, leaving one- and two-story 200,000-square-foot boxes vacant. Local developers acquired these boxes, converting two properties into Giant Eagle grocery stores and Kmart/Builder’s Square centers. The Builder’s Square has subsequently been converted into Steinmart and Dunham’s Sports. One of the other Kaufmann’s stores was converted into the Galleria of Mt. Lebanon, a lifestyle center, while the other location, originally converted to an automobile dealership, is now a Lowe’s Home Improvement Center.

An example of a complete redevelopment of a longstanding retail center is Northway Mall, now known as Block Northway. Originally constructed circa 1960 as a freestanding Horne’s Department Store and a supermarket, the two boxes were connected with strip retail that was eventually enclosed and expanded to two levels. Since acquiring the property in 2012, LRC Realty has worked to redevelop the property, which is now home to the only Pittsburgh locations of Nordstrom Rack, Saks Off 5th and Container Store, as well as DSW, ULTA, PetSmart and Marshalls, among other tenants. Access from multiple points, plus an expansive parking field attracted retailers to this newly redeveloped property situated along the major corridor in the North Hills suburban area.

Existing retail centers with great locations and with visibility or access (both are not necessary in Pittsburgh) continue to thrive, adapting to the changing retail environment by replacing non-performing tenants with new retail concepts. Miracle Mile Shopping Center is a perfect example, having been modernized throughout the decades since it was originally built in 1954 and continuing as the dominant retail center in the Monroeville submarket. The property was previously occupied by JCPenney, WT Grant, Sun Drugs, Service Merchandise and others; Pearson Partners now leases space to Marshalls, DSW, Old Navy and LA Fitness, to name a few.

That is not to say that new development is absent from the Pittsburgh market. McCandless Crossing in the North Hills suburban market appears to be a thriving mixed-use development that not only includes significant retail — Dick’s Sporting Goods, Old Navy, Home Goods, Cinemark Theater, and multiple restaurants and smaller retail shops — but has also incorporated the full “live, work, play” concept with for-sale residential units, hotels, service providers and a fitness center. This project took developer Kevin Dougherty of AdVenture many years to assemble and obtain all necessary approvals and permits.

Do we have less successful developments and areas in Pittsburgh? Yes, let’s not kid ourselves. Wells Fargo just acquired the Frazier Galleria, PREIT sold Beaver Valley Mall and Century III Mall was acquired — all at comparatively reduced pricing, but with plans for redevelopment. It appears that the topography and limited highway access played a role in the demise of these and other properties, as well as lack of funds for redevelopment — or simply too much space in challenging locations.

The common theme between the city’s successful retail properties is great locations with parking fields situated along the dominant highway in each of Pittsburgh’s quadrants. While access and/or visibility may enhance each property, the lack of available land enables older properties to be adaptively reused or redeveloped to meet today’s retailing needs, while limiting the supply of new retail spaces.

— By Claudia Steeb, Senior Managing Director, HFF. This article first appeared in the May 2017 issue of Northeast Real Estate Business magazine.

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