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ESSENTIAL

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COMMERCE. CULTURE. CREATIVITY.

THE NEW HEART OF NEW YORK

7 LEVELS

SHOPS + RESTAURANTS

2.4-HECTARE PUBLIC SQUARE

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Visit MAPIC, Booth P-1 G74 to learn more about New York’s Next Great Neighborhood HudsonYardsNewYork.com #BeInTheNext

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DAYS OF FESTIVALS + EVENTS

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DEDICATED CONFERENCES & EVENTS:

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N° dossier : 20141493E Date : 07/08/2015 AC/DC validation : Client validation :

The Big Picture: The USA The world’s most influential retail market:

Wednesday 18 November, 11.30-12.30, Champs-Elysées room

USA Country of Honor Happy Hour:

Retailing USA. Opportunity Awaits: Organized by JLL USA, Thursday 19 November, 11.00-12.00, Verriere Grand Auditorium

MAPIC Awards:

USA Breakfast:

Thursday 19 November, Grand Hyatt Cannes Hotel Martinez Book your seat or table: mapic.awards@reedmidem.com

Thursday 19 November, 8.00-9.30, Verriere Grand Auditorium by invitation only

Here a special award will be granted to the best American project or retailer.

Wednesday 18 November, 17.30-18.30, USA Pavilion

THANK YOU TO OUR USA COUNTRY OF HONOR SPONSORS

★ Bronx (Paris) www.bronx.fr

The American mall has undergone a major transformation, exploring new concepts and adapting to new cultures and evolving tastes. This year, MAPIC is pleased to recognize the United States of America as Country of Honor, and invites you to celebrate the USA with a special focus on the current retail landscape in America.

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CONTENTS

Mark Faithfull Editor-in-Chief, MAPIC News

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RETAILERS 22

From the first chain stores to the onlinerevolution, US retail has been at the forefront of innovation and has re-found its entrepreneurial spirit for expansion.

In with the new and out with the old as America’s retailers re-evaluate their concepts and increasingly compete with a foreign legion excited by the market’s potential.

MARKET ENTRY

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It might offer a world of opportunities but the American dream can turn into an expensive nightmare for those not prepared to understand the country’s unique dynamics.

CITY MARKETS

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Retail growth in the US is not only about the country’s traditional powerhouses but also an emerging group of key development locations and a residential return to Downtown.

INVESTMENT 16 Investors are exploring opportunities to develop and asset manage schemes around the US, as they seek value and target growth States, with foreign investment also arriving.

RESHAPING RETAIL

OUTWARD INVESTMENT

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Once upon a time in America it was only about the domestic market, but any analysis of global real estate investment reveals that US companies are stepping out. iStockphoto.com/kmlmtz66

QUITE simply the world’s largest and most influential retail market for generations, the US has recently been buffeted by external factors, not least the 2008 financial meltdown, the global rise of European fast fashion and the emergence of China as a retail super power.

Yet nothing characterises the US better than its ability to fight its corner and many of America’s retailers have responded to the new challenges with their own growth stories, repopulating their country’s Main Streets, creating new concepts and moving beyond domestic borders.

At the same time, North America has rekindled its entrepreneurial spirit and its ability to scale the operations that forged its first generation of retail giants, with Amazon, eBay and Google, plus manufacturer-cum-brands like Apple, reinventing the retail experience and fundamentally recalibrating customer expectations.

Against such a dynamic backdrop, this special Essential USA publication has attempted to unpick the patchwork quilt that is the US retail market.

Of course, not every location has benefitted from the increasing confidence displayed by US consumers, buoyed by low fuel prices and increasing job security.

But a new generation of young consumers is opting not only to work but also to live Downtown, reigniting many neglected Main Streets and urban districts.

New retail markets are being opened up as investors and developers look for value and new entrants are reshaping the very notion of retailing.

At MAPIC, a host of special events will support a record US presence, as the US opens its doors to the world and also seeks opportunities beyond its own borders.

iStockphoto.com/Leonardo Patrizi

Recapturing the entrepreneurial spirit

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Malls and Main Streets are changing to capture a new consumer appetite for greater experience and more convenience, meaning a reimagining of destinations.

ESSENTIAL USA – November 2015 – MAPIC News Special Report. Director of Publications Paul Zilk Director of Communication Mike Williams EDITORIAL DEPARTMENT Editor in Chief Mark Faithfull Technical Editor in Chief Herve Traisnel Deputy Technical Editor in Chief Frederic Beauseigneur Sub Editor Jo Stephens Proof Reader Debbie Lincoln Contributors Ben Cooper, Elliot Golan, Debra Hazel, Ben Mazzara, Liz Morrell, Graham Parker, Ethan Rothstein, John Ryan Cover images top left: 2015 Callison LLC, top right: Dalziel and Pow 2015, centre: iStockphoto.com/ Anna Bryukhanova, bottom left: iStockphoto.com/tupungato, bottom right: iStockphoto.com tobiasjo PRODUCTION DEPARTMENT Publishing Director Martin Screpel Publishing Manager Amrane Lamiri Co-ordinator Yovana Filipovic Printer Riccobono Imprimeurs, Le Muy (France) Reed MIDEM, a joint stock company (SAS), with a capital of €310.000, 662 003 557 R.C.S. NANTERRE, having offices located at 27-33 Quai Alphonse Le Gallo - 92100 BOULOGNE-BILLANCOURT (FRANCE), VAT number FR91 662 003 557.

Contents © 2015, Reed MIDEM Market Publications. Publication registered 4th quarter 2015.

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iStockphoto.com/Leonardo Patrizi

THE BIG PICTURE

Shopping with Uncle Sam Arguably the most influential retail market in the world, yet previously very inward looking, the US has now opened up to the world. Mark Faithfull looks at how its chains, consumers and concepts continue to shape the global picture

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IME was when just about every major retail innovation came from North America. The US exported the automation, franchising and consumerism that informs much of current retail thinking. And when the new generation of pure players came along, the US exported those too, most notably Amazon and eBay. Yet over the past decade, the flow of retail has become a two-way street and Europe’s fast-fashion retailers have had a huge impact on the US’ domestic retail landscape.

Meanwhile, overseas equity has crept into mall and main-street investment and China’s Alibaba completed its record-breaking IPO on the New York Stock Exchange.

Little wonder, too, that when the US’ infamously spendthrift shoppers kept their wallets in their pockets following the 2008 financial crisis, the retailing slowdown swept across the world. Seven years on and, encouragingly, American consumers are well and truly back, having increased their spending in September, providing support to the US economy.

Sales at retailers and restaurants rose a seasonally adjusted 0.1% in September from August, according to US Department of Commerce. Overall, retail sales have not fallen since January, suggesting that the lower fuel prices have given Americans a bit more discretionary cash and personal spending. The measure of how much Americans paid for everything from home appliances to healthcare rose 0.4% in August from a month earlier.

That upbeat consumer mood is reflected in retail real estate, with investment beyond

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THE BIG PICTURE >>

the key retail cities around the country as investors go in search of growth and new opportunities.

“We’ve seen the investment market open up to what I would call ‘tier 1.5 cities’ as investors go in search of yield,” says Alexandra Bryant, New York-based managing director of JLL’s Americas Capital Markets & International Capital Group. “So after the last 18 months, we’ve seen a lot of activity in New York, Los Angeles, San Francisco, Boston and Chicago. As the yield has come in, now we have seen more interest in Miami, Dallas and those cities that have robust fundamentals and are really benefiting from the re-urbanisation of the US, with thirtysomethings staying in the cities rather than moving out.”

Bryant adds: “What we are also noting is the wider spread of money. So we have European investment, especially some of the

“We have seen more interest in Miami, Dallas and those cities that have robust fundamentals and are benefiting from the re-urbanisation of the US” Alexandra Bryant

PROJECTS

Dania Pointe, Dania Beach, Florida (Kimco) DANIA Pointe is a 40 ha premier mixed-use development with 100,000 sq m of retail and restaurants in addition to class-A offices, hotels, luxury apartments and public event space.

Dania Pointe’s accessibility from Interstate 95 and immediate proximity to the Fort Lauderdale-Hollywood International Airport, Port Everglades Cruise Port and the DCOTA design centre make it an attractive retail destination in Broward County.

The shops at Dania Pointe will consist of a sophisticated mix of shopping, dining and entertainment venues, which will appeal to the one million-plus consumers living in the surrounding trade area, as well as the projected 15 million domestic and international tourists expected to visit Broward County in 2015.

German funds, active again. Plus AustralianSuper and Singapore’s GIC have been active.

And obviously there are the domestic REITs. In terms of liquidity, much of the movement is coming from investors selling down minority stakes and partial interest sales. For portfolio deals, it’s often a case of partnering with a local business.”

Competition is hot for good quality product, however, and many investors have focused on their niches. Melissa Gliatta, executive vice-president of Thor Equities, says: “From our perspective, there’s a lot of strength in the market both for luxury retail and premium high street. The focus is really about getting the tenant mix right and ensuring that tenant placement works well for the retailer and the scheme. We spent a lot of time as retailers before we worked in real estate

The Kirby Collection, Houston, Texas (Thor Equities) THE KIRBY Collection is a new luxury mixed-use development in the prestigious River Oaks neighbourhood of Houston, Texas. Scheduled to open in the fourth quarter of 2017, the 100,000 sq m residential, office, retail and entertainment project features two levels of prime retail space totalling 6,000 sq m that will be home to first-class restaurants, nightlife and world-class shopping.

A 25-storey, 36,000 sq m residential tower will house 199 apartments, including seven two-storey townhomes and seven two-storey loft spaces with private yards. The penthouse level will feature a Skyview Suite available to all residents, offering a chef’s kitchen and panoramic views of the Houston skyline. In addition, the Kirby Collection’s 13-storey, 20,000 sq m class-A office building is in close proximity to four of the city’s largest employment hubs.

The Kirby Collection blends classic and contemporary design, offering luxury and convenience for those who choose to live, work and play in the same location.

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and we feel we really understand what they need and their perspective.”

She adds: “As a business, we feel we know our position in the market. We are interested in those locations where we can add value and we are very selective in what we look for. Retail property is a busy business and we’re always looking at opportunities. But of course, there is a lot of competition for prime

positions and so I think you also have to understand that not every deal is for you either.”

Another company to have refined its niche and to have reviewed the new dynamics of the market is Acadia. Christopher Conlon, executive vice-president and chief operating officer of Acadia Realty Trust, says: “Up until five or so years ago, we were very much focused on the suburban market. But we have

changed our strategy and, although we remain actively involved in suburban malls, we now focus on urban schemes because of the demographic shift. That applies to both our asset-management funds, where we buy, improve and sell, and to our long-term holdings.”

Acadia has also branched out geographically.

“We have so far focused on a number of areas including New York, Boston, Washing-

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“There’s a lot of strength in the market both for luxury retail and premium high street. The focus is really about getting the tenant mix right”

Melissa Gliatta

City Point, Brooklyn, New York (Acadia Realty Trust)

Hudson Yards, New York (Related Companies)

SET TO open in the heart of downtown Brooklyn in autumn 2016, City Point is a 170,000 sq m mixed-use development of new construction, including retail, residential, entertainment and office space. The centre, which is anchored by Century 21 Department Store, CityTarget and Alamo Drafthouse Cinema, will include the best of Brooklyn’s food purveyors. It aims to create an authentic experience and gathering place for Brooklynites.

City Point’s iconic design will anchor the thriving academic, residential and commercial communities in Downtown Brooklyn. It is owned and is being developed by Acadia Realty Trust, one of the shopping-centre industry’s top-performing REITs.

AT THE epicentre of Manhattan’s New West Side, Hudson Yards is the largest private real estate development in the history of the US and the largest development in New York City since Rockefeller Center. The site, anticipated to host 24 million visitors each year, will ultimately include more than 1.5 million sq m of commercial and residential space, five state-of-the-art office towers, 100-plus shops, a collection of restaurants, approximately 5,000 residences, 5.7 ha of public open space and an Equinox-branded luxury hotel.

Hudson Yards will feature seven levels of cutting-edge shopping, offering a mix of fashion brands. A three-level Neiman Marcus — the first ever in New York City — will anchor the 93,000 sq m Shops at Hudson Yards. The Restaurants at Hudson Yards will offer an array of international cuisine amid stunning surroundings.

With easy access to the High Line, Public Square and Culture Shed, the Shops & Restaurants at Hudson Yards promise to be one of New York City’s most enticing destinations, morning and night.

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THE BIG PICTURE >>

ton DC, Miami, Chicago and San Francisco,” Conlon adds. “We are also widening that investment out to further cities, so long as we like the location and the demographics.

That’s leading us to deal with a lot of new retailers and to have some in-depth conversations about how they see the future and their own portfolios. It’s those relationships that MAPIC really helps us to build.”

Those further cities include Miami Beach and Savannah, while areas such as the Bowery in New York, Winward in Florida and Chicago’s West Loop are also of interest. Meanwhile, the company’s biggest project to date is City Point in the super-cool New York borough of Brooklyn. City Point is a 170,000 sq m mixed-use development that includes retail, residential, entertainment and office space. The centre, which is anchored by Century 21 Department Store, CityTarget and Alamo Drafthouse Cinema, will include the best of Brooklyn’s food purveyors, creating “an authentic experience and gathering place for Brooklynites”.

FEDERATED BUYS INTO MIAMI FEDERAL Realty Investment Trust has acquired an 80% interest in CocoWalk, a 198,000 sq ft (18,394 sq m) lifestyle centre in Miami, Florida’s Coconut Grove neighbourhood, for a total value of $87.5m. The Trust acquired the property with local market partners Grass River Property and The Comras Company.

The centre is situated at the prominent intersection of Main Highway, McFarlane Road and Grand Avenue.

“CocoWalk is the focal point of Coconut Grove’s historic village centre, a short walk from Biscayne Bay and some of This is in part reflective of the changes that e-commerce are thrusting upon real estate markets. “In an omni-channel age, these urban touch points are becoming incredibly important

PROJECTS The Boulevard, Staten Island, New York (Kimco)

KIMCO has recognised the potential of Staten Island and is in the process of transforming the already ideally located Hylan Plaza into a shopping centre befitting this growing borough. It will become The Boulevard and serve as the premier downtown hub on the Hylan Boulevard commercial corridor.

With its unbeatable location, the centre is easily accessible from all parts of the island. To take it to the next level, Hylan Plaza is undergoing a transformation. The Boulevard will be a newly constructed, multistorey lifestyle centre providing a Main Street shopping experience.

The seamlessly connected mix of fashion, necessities, restaurants, entertainment and lively sidewalk activity is sure to draw crowds.

Miami’s most prominent residential neighbourhoods,” says Jim Taylor, executive vice-president, and chief financial officer and treasurer of Federal Realty Investment Trust. “Surrounded by new residential towers, hotels, offices, schools, parks and marinas, CocoWalk’s tenants serve more than 150,000 Coconut Grove residents and millions of visitors each year. Partnering with neighbourhood experts, we see significant opportunity to transform and remerchandise a property at the centre of Miami’s most authentic district.” for retailers,” Conlon says. “We’re looking at those locations where retailers can reach the consumers while also creating a platform for them to open across a number of sites across

Westfield World Trade Center, New York (Westfield) WESTFIELD World Trade Center is designed to be an iconic destination that speaks to New Yorkers and redefines the Lower Manhattan experience. It will transform 320,000 sq m of space into a fashion, culinary and artistic hub that includes a dynamic mix of 150 local and global brands and unique dining opportunities.

Westfield World Trade Center will serve a diverse community with New York-centric services and amenities, must-see events, state-of-theart digital technology and extraordinary culture and entertainment.

Located in and around the Oculus, designed by renowned architect Santiago Calatrava, it will include a multi-level store presence in 3 World Trade Center and 4 World Trade Center.

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the country if they want, which means increasing our geographical spread.”

Bryant adds that polarisation is prevalent but that, with such fierce competition, investors are now looking beyond prime. “As in most markets, a lot has been made of the death of secondary,” she says. “But as prices have softened, there are opportunities, although there remains a lot of caution around such assets. The key is whether the fundamentals support a scheme, such as demographics, employment and location.”

Of course, it is not only about the US. Thor is one of those US businesses that has spread its wings beyond its domestic market. “We’ve been active in the US but also, increasingly, in Europe and we’ll look at opportunities wherever they feel right,” Gliatta says. “I would say we are very open but also very focused. That’s where MAPIC has really come in for us, because we have a lot of very high-quality meetings.”n

MORE FROM MALL OF SAN JUAN IN SEPTEMBER, The Mall of San Juan announced 18 new stores, including Puerto Rico’s only Williams-Sonoma and Pottery Barn, along with luxury brands Bulgari and Gustavo Arango, and the 100th Oil & Vinegar store.

This summer, the mall also welcomed Burger & Beer Joint, Carmen Steffens, Hollister, Melissa Shoes, Swarovski, Tommy Bahama and Zara.

“Our line-up of premium retailers and restaurants will become even more distinctive,” says Marnie Marquina, marketing and sponsorship director of The Mall of San Juan. “From talented Puerto Rican designers to stores exclusive to the island, we’re excited

to offer our customers a truly unique shopping and dining experience.”

Since the centre’s grand opening on March 26, more than 45 stores have opened at The Mall of San Juan, including the first Saks Fifth Avenue and Nordstrom in the Caribbean.

Empire Outlets, New York (Casandra Properties)

The Broughton Street Collection, Savannah (Acadia Realty Trust)

Empire Outlets will be New York City’s first outlet shopping destination and will form the new retail centerpiece to Destination St George, steps from the Staten Island Ferry Terminal. This project will be the a free ferry ride from Manhattan and will provide value shopping, great food and a hip, waterfront atmosphere. Empire Outlets will include a 190-room boutique hotel with a 20,000 sq ft ballroom/event space, 1,250 parking spaces, 330,000 sq ft of leasable space – of which 30,000 sq ft is allocated to food and beverage – and 5,000 sq ft of rooftop event space.

THE BROUGHTON Street Collection is a mixed-use redevelopment project encompassing retail, restaurants, residential and office uses in the heart of downtown Savannah. Broughton Street is steeped in beautiful architecture with historic buildings dating back to the late 1800s. It is a destination where 14 million annual visitors and local families alike can spend the day shopping, dining and taking in the history.

The project encompasses more than 20,900 sq m of street-level retail, representing approximately 65% of the total inventory on the thoroughfare. The mix includes 3,700 sq m of planned restaurant use with options for rooftop and multi-level space. And secondand third-floor office space will feature exposed brick walls, 3.7 m ceiling heights and beautifully restored wood flooring.

The Broughton Street Collection also features 20 residential lofts. The one- and two-bedroom units showcase a style and sophistication that is unique in historic Savannah.

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CITY MARKETS

The new frontiers A host of new developments and expansions are driving the North American shoppingcentre pipeline. Debra Hazel looks at how the top retail cities are re-shaping for the future New York City PROBABLY the most expensive market in the US, New York is seeing its retail districts expand. In addition to the upcoming Westfield World Trade Center and recently-opened Brookfield Place (see page 10) downtown, other mixed-use developments are creating new retail districts.

Hudson Yards, Manhattan: Now under development on the Far West Side over rail yards, this project from Related Companies will feature five office towers, 5,000 residences, open space, a public school, and a 100-shop retail complex anchored by the first Neiman Marcus in New York City and dining from Thomas Keller.

Empire Outlets, Staten Island: Being built near the Staten Island Ferry Terminal just 20 minutes from Manhattan, this 1 million sq ft (92,900 sq m) open-air centre is the first true outlet project within New York City. Developer BFC Partners has signed Nordstrom Rack and H&M as anchors, with Gap, Banana Republic, Guess, US Polo and dining to be part of the mix when it opens in 2016.

Staten Island Mall, Staten Island: Owner General Growth Properties (GGP) will add 427,000 sq ft to this enclosed centre, which has dominated the borough’s retail scene for decades, by 2017. Most interesting is the inclusion of a Fairway Market to the tenant mix — combining a supermarket with fashion anchors and tenants remains a rarity in the US.

Suburban New York

iStockphoto.com/Nikada

New York’s suburbs, ironically, are some of the most under-retailed markets in the US, the reason being that the population is dense and the barriers to entry (including zoning and lack of available land) are high.

Yet it now is one of the most active areas in terms of development.

American Dream Meadowlands: Just across the Hudson River in East Rutherford, New

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Jersey, the never-opened American Dream (formerly Meadowlands Xanadu) now appears to be taking shape. New developer Triple Five has signed Saks Fifth Avenue, Saks Off Fifth and Lord & Taylor, all HBC brands, for the 3 million sq ft retail colossus. Joining them will be Aritzia, Banana Republic, Gap, Mac, Microsoft, Pink, Uniqlo, Victoria’s Secret and Zara. Entertainment includes an indoor ski slope. The opening is now set for late summer 2017.

The Shops at Syosset Park: Planned for a holiday 2018 debut, Simon Property Group’s project in Oyster Bay, New York, will include 450,000 sq ft of retail, restaurants and entertainment, up to 200,000 sq ft of class-A office space, hotels and residential spaces in eastern Long Island.

Roosevelt Field: Built on the airfield from which Charles Lindbergh departed for his historic flight to Paris, this mall is being expanded again to add the only Neiman Marcus on Long Island.

Green Acres Mall, Valley Stream: Located just outside the New York City line in Nassau County, this enclosed mall is seeing local offprice legend Century 21 open this autumn, as an adjacent 20-acre (8.09 ha) parcel is being developed into a power centre with bigbox retail.

Boston With unemployment rates dropping more than 120 basis points to 3.8% from April 2014 to April 2015— well below the US average — mixed-use construction featuring residential and retail space is remaking districts in the city. As young professionals return to downtown, supermarkets including Roche Bros, Star Markets and Wegmans all have found or are looking for locations.

Copley Place: Simon Property Group is renovating and expanding this luxury centre in the Back Bay at a cost of $500m, adding high-end finishes, as well as designer retailers including Moncler and Versace.

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Seaport Square: Twenty-three acres of South Boston waterfront will be converted into a neighbourhood, with 6.3 million sq ft of residential, retail, entertainment, office, hotel and cultural space. Approximately 1.3 million sq ft will be dedicated to retail, dining and entertainment uses, says developer WS Development.

Miami One of the busiest retail markets in the country, Miami is seeing massive development, with 1.9 million sq ft under construction in the second quarter of 2015, according to CBRE. Many international retailers now consider Miami the second most important location after New York, as international tourism booms.

American Dream: Canada’s Triple Five is continuing to assemble the land for the project, which it says will be the largest in the US, with 2.5 million sq ft of retail, as well as entertainment. Plans call for retail, an indoor ski slope similar to that found at American Dream Meadowlands, dining, a skating rink and a submarine ride on 200 acres The Mall at Miami Worldcenter: Not far from Brickell City Centre and to be anchored by Bloomingdale’s and Macy’s, the 765,000 sq ft development will also include 90,000 sq ft of restaurants and entertainment. Some 1,500 residential units will top the project, located at the intersection of Interstates 95 and 395.

It is being developed by Forbes and Taubman, who created The Mall at Millennia in Orlando.

SoLe Mia Mainstreet: This 675,000 sq ft lifestyle centre will serve as the core of Turnberry Associates and LeFrak’s $4bn 183-acre master-planned community on undeveloped land in North Miami. Among the proposed tenants when the project is completed in 2018 are a high-end cinema with dining, a gourmet grocer and fashion retail.

Houston Hit only lightly by the Great Recession and thriving despite a decline in oil prices, Houston is a market that continues to attract new residents, especially those in search of comparatively affordable single-family homes. Even as the developers of River Oaks (see page XX) attempt to establish an urban core, older suburban projects are renovating and expanding.

More than 8 million sq ft of new retail space has been proposed, CBRE reports.

The Galleria: This pioneering mixed-use development and city landmark will be ex-

panded to include a 198,000 sq ft Saks Fifth Avenue in spring 2016, while the older Saks building is converted to luxury retailers.

Los Angeles With the downtown area close to the Staples Center and LA Live seeing renewed interest, multiple developers are creating mixed-use projects that will bring residential and high-end fashion space to what had been a neglected area of the city.

Westfield Century City: Now in the midst of an $800m renovation and 422,000 sq ft expansion, this centre will add an outdoor event arena, 70 shops and restaurants, parking and eight acres of outdoor space when completed in 2017.

Del Amo Fashion Center: Nordstrom has joined this Simon Property Group centre, which opened on October 9. It forms part of a $200m, three-year renovation that added an upscale wing and deck parking.

The Village at Westfield Topanga: The $450m open expansion of the mall debuted in September, featuring a combination of large retailers including Costco and Crate & Barrel, and restaurants that continue to open.

The Bloc: part of the complete remaking of Downtown LA, the former Macy’s Plaza is being redeveloped by Wayne Ratkovich into an open-air collection of shops and restaurants, an office building, a hotel, a public plaza and the first linkage of the Los Angeles metro to a private development. An Alamo Drafthouse Cinema and updated Macy’s will anchor the retail.

Honolulu It’s all about tourism and constrained land availability in Honolulu, with low unemployment (4.1% in April — below the national average), visitor arrivals increasing and redevelopments taking centre stage.

Ala Moana Center: One of the dominant regional centres in the US, with some $1,300 per sq ft in sales, the 2 million sq ft open-air mall is in the final stages of a renovation and expansion by GGP. Also joining the project next year is a $35m Japanese food village from Shirokiya Holdings, to open in June 2016.

International Market Place: Taubman’s redevelopment of what had been a project dominated by mom-and-pops in the heart of Waikiki’s high-end hotel and shopping district will create an upscale retail and dining destination anchored by a full-line Saks Fifth Avenue. An

iconic banyan tree will remain in the middle of the centre, which will open in August 2016.

Philadelphia Philadelphia is in the midst of outlet mania, particularly in its central business district, Center City. Older centres are being renovated into new projects.

Shops at Liberty Place: Bloomingdale’s will open at outlet store at this existing complex on Chestnut Street this month.

Fashion Outlets of Philadelphia @ Market East: Pennsylvania Real Estate Investment Trust and Macerich will turn The Gallery, which comprises three blocks on East Market Street in Center City, into 730,000 sq ft of designer outlet stores.

Washington, DC Luxury tenants continue to find this affluent, ever-solid market, bolstered by law and lobbying firms. Large mixed-use projects continue to dominate new construction.

Clarksburg Premium Outlets: Being built by a partnership between New England Development, Streetscape Partners and Simon Property Group in an affluent corridor in suburban Maryland, the 400,000 sq ft centre will be home to 100 designer and namebrand outlets in 2016.

Toronto, Canada The exit from US general merchandiser Target has created vacancy throughout Canada as it leaves nearly 15 million sq ft of space, reports Cushman & Wakefield. However, the entry of Muji, Uniqlo and Nordstrom will help absorb some of this space.

Yorkdale Shopping Centre: The Oxford Properties centre is expanding both to the east and the west, with the east expansion adding 298,000 sq ft including five levels of underground parking, a 188,000 sq ft Nordstrom and a 35,000 sq ft Uniqlo. The 120,000 sq ft west expansion will be anchored by Restoration Hardware (taking a former Sears location). Both will open in late 2016.

Sherway Gardens: Cadillac Fairview opened the first phase of this project’s C$550m expansion in September, debuting a new flagship Harry Rosen, a renovated Hudson’s Bay and new upscale stores including Ted Baker London, Uno De 50 and Samsung, a food hall and restaurants. Coming in 2016 and 2017 will be Saks Fifth Avenue and Nordstrom.

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CITY MARKETS

THE BIG FIVE

Top US mixed-use projects

By Ben Mazzara, Bisnow Media national reporter

Comcast Innovation and Technology Center Location: Philadelphia Cost: $1.2bn Developers: Comcast and Liberty Property Trust Opening: 2017 Details: The 1.57 million sq ft Comcast Innovation and Technology Center will include 45 floors of offices, a 200-room Four Seasons Hotel, and restaurants and shops on the ground floor. Lord Norman Foster designed the 59-storey building, which will span a city block. At 1,121 ft, it will be eighth tallest building in the US. Tenants will include Telemundo and NBC 10, which will use the building’s three TV studios. It will also feature a retail mall, a parking garage and a top-floor restaurant.

The Wharf Location: Washington, DC Cost: $1.5bn Developer: Hoffman-Madison Waterfront Opening: Phase one, 2017 Details: DC’s largest construction project will feature 3.2 million sq ft of residential, office, hotel, retail and cultural space, underground parking, piers, marinas, parks and open spaces. The developer has plans for an entertainment street named Jazz Alley, a rum distillery, a boardwalk, multiple piers and a 6,000-capacity concert hall. Two waterfront luxury condos — the VIO and 525 Water Street — have announced pre-sales. In July, the American Psychiatric Association announced that it will occupy 63,000 sq ft of class-A office space at 800 Maine Ave, making it The Wharf’s first office tenant.

Brickell City Centre Location: Miami Opening: Office, hotel and condo in late 2015; Developer: Swire Properties retail in 2016 Cost: $1.05bn Details: At 5.4 million sq ft, Brickell City Centre will be one of the largest LEED-certified projects in the US. Its luxury retail space features a $20m elevated glass, steel and fabric trellis called the Climate Ribbon, which helps create an energy-efficient microclimate. Car2Go is providing a low-emission smartcar service. The massive mixed-use project also includes two 269,000 sq ft class-A office towers and two condo towers with 780 units, a 622-seat dine-in cinema, and EAST, a hotel with 263 rooms and 89 serviced apartments.

Seaport Square Developer: Boston Global Investors Opening: 2020 Cost: estimated $3.5bn Details: At 8.5 million sq ft and 23 acres, this is the largest planned project in the history of Boston.

It will create five new streets, 20 buildings and four public spaces. There will be 2.6 million sq ft of residential, 1.3 million sq ft of both office and retail, 2.2 million sq ft of below-ground parking for 6,000 cars, 850,000 sq ft of hotel space, and 250,000 sq ft for cultural, civil and education properties. In one of the open areas, the development will feature the Seaport Square Park with a memorial to those who died in the War On Terrorism. One Seaport Square — covering 1.5 million sq ft over three acres — is an impressive mixed-use building in its own right, featuring two residential towers with 832 total units. It will also feature 250,000 sq ft of retail space, including a bowling alley, a fitness centre and a cinema.

American Dream Miami Location: Miami Cost: $4bn Developer: Triple Five Opening: 2019-2020 Details: The US’ largest mall will have 3 million sq ft of retail, 2 million sq ft of entertainment and a 2,000-room hotel. Its many amenities include a DreamWorks theme park (with roller coasters and a ferris wheel), a film/TV production studio, a lake with marine life including sharks and manta rays, performance halls, a 3,000-seat cinema, an ice-skating rink, a museum, bowling, 100 restaurants, and an indoor 180,000 sq ft ski slope and water park that both use recycled water. When completed, the complex will employ 25,000 people — the largest private-sector payroll in Miami.

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026_ACADIA_PV_PIC

Retail Leasing Contact: Meghan Kruger

mkruger@acadiarealty.com

212.324.1255

330 Madison Avenue | Suite 3105 | New York, NY 10017

New York SoHo NoHo Tribeca Union Square Upper East Side Madison Avenue Brooklyn The Bowery Midtown Connecticut Greenwich Westport Chicago The Gold Coast The Loop Magnificent Mile Lincoln Park Lakeview Wicker Park Washington D.C. Georgetown Dupont Circle Boston Cambridge Miami Beach Lincoln Road Georgia Savannah Broughton Street San Francisco

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INVESTMENT

Show me the money Go big or go home — that appears to be the philosophy for those financing retail property in the US and Canada. At least for now, writes Debra Hazel

D

ESPITE rapidly escalating prices and cap-rate compression, investors both domestic and foreign are focusing their attention and their money on urban locations in the largest metropolitan areas. But as US property prices rise and economic fundamentals improve in secondary markets, look for interest to pick up in the smaller cities.

“There’s lots of capital available for the retail sector,” says William E Hughes, senior vicepresident of Marcus & Millichap Capital. “All the lenders like to go to primary markets, though most will go to secondary markets as well.”

The main reason is that that’s where the people are. The millennial generation and their baby-boomer parents are reversing a decades-long shift to the suburbs and are moving back to major cities. According to the US Census Bureau, population growth in US cities rose 12.1% from 2000 to 2010, against an overall growth of 9.7%. More than 81% of Canadians lived in urban centres in 2011, according to Statistics Canada.

And now investors are following suit, purchasing and financing projects in coastal gateway cities using a variety of vehicles.

“There’s a new look at commercial real es-

tate as a good-quality asset that holds its value,” Hughes says.

Investment in US retail assets has risen dramatically over the past two years. Retail mortgage originations rose 17% in the second quarter of 2015 over the previous year, according to the Mortgage Bankers Association. The total investment of $78bn for the year ending with the first quarter of 2015 was the highest total on record and a 24% increase over the previous year, CBRE says, quoting data from Real Capital Analytics.

By sector, public real estate investment trusts (REITs) were the largest buyers of

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The Ala Moana Center in Honolulu has attracted major Australian investment

“There is plenty of value to be generated in buying core and in buying assets within great retail corridors in major cities” malls (41% of the total volume), followed by private companies with 28% and institutional capital with 13%, reports CBRE’s Q1 2015 US Retail MarketView.

With new development at a near standstill, many mall REITs also are reinvesting in their holdings. “The mall REITs are looking at investments in existing high-quality malls,” says John Ragland, senior director of retail asset management for TIAA-CREF in New York City. As part of its strategy of acquiring joint interests in toptier regional malls, TIAA-CREF in July acquired a 12.5% stake in Honolulu’s Ala Moana Center in a venture with GGP and AustralianSuper.

“We have a focused strategy, primarily investing in core properties,” Ragland says.

“There is plenty of value to be generated in buying core and in buying assets within great retail corridors in major cities.”

Private buyers also dominated the still-fragmented open-air sector, with 62% of the purchases. Public REITs acquired 24%, while institutional investors purchased 7%, according to CBRE’s 2015 Retail Marketview.

“Domestic funds are very active on core assets in the top eight markets, purchasing everything from grocery-anchored centres to power centres to malls to high-street retail,” says Mark Bratt, senior managing director of CBRE Capital Markets in New York.

Life-insurance companies, too, remain active investors, at about 60% or 65% leverage, focused on high-end retail in major market, Bratt adds. Commercial banks have also been active. Even the collateralised mortgage-backed securities market (CMBS), which was decimated during the US recession, has once again become a force, though not at pre-downturn levels.

John Ragland

“CMBS is alive and active,” Hughes says, adding that Marcus & Millichap typically uses CMBS product when more leverage is needed, such as projects with shadow anchors etc. CMBS issuances (for all real estate sectors) topped at $230bn in 2007 and Marcus & Millichap estimates some $100bn in issuances in 2015.

Domestic investors are also facing growing competition from overseas sovereign-wealth funds, pension funds and high net-worth individuals, drawn by political and economic stability, transparency and better yields than are available at home. And they, too, are pursuing retail in gateway cities such as New York, Los Angeles and Miami.

The trick is finding available properties as prices continue to rise. In the first quarter of 2015, the sales price per sq ft averaged

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INVESTMENT “New York has gotten so expensive that Los Angeles is comparatively cheap” Stephanie Skrbin >>

$230, up 14% from a year earlier. Within the two principal types of centres in the transactional database, the sharpest gain came in the open-air centres, which jumped 19% to $166, while the average mall-centre sales price rose by 11%, to $323 per sq ft, according to CBRE’s Q1 2015 US Retail MarketView.

“New York has gotten so expensive that Los Angeles is comparatively cheap,” says Stephanie Skrbin, a principal at Avison Young in Los Angeles.

Some investors are now looking at smaller cities, grade-B malls and even well located properties that may have lost an anchor in search of greater returns later on. “We can get more bids for high-quality distressed assets,” CBRE’s Bratt says. “But there are very few of those opportunities.”

What isn’t happening, at least for now, is the kind of overleveraging that led to the last crisis. “While capital certainly is available, lenders have maintained standards,” Marcus & Millichap’s Hughes says. “While history is prone to repeat itself, lenders have learned their lesson. Over-leveraging assets is a no-no.” n

“While history is prone to repeat itself, lenders have learned their lesson.

Over-leveraging assets is a no-no” William E Hughes

THE BIG FIVE

Top US retail REITs

By Elliot Golan, Bisnow Media West Coast editor

Simon Property Group (NYSE: SPG) Simon is the largest US REIT, with a market cap of $54bn. Launched in 1960 in Indianapolis, Indiana, founding brothers Melvin and Herbert Simon took the company public in 1993. It now predominantly owns regional malls and outlet malls, with a portfolio of

about 230 properties comprising 190 million sq ft across North America, Europe and Asia.

This year it attempted to buy rival mall owner Macerich and spun off its smaller US assets into a separate publicly traded firm, Washington Prime Group.

General Growth Properties (NYSE: GGP) General Growth Properties (GGP), with a market cap of $22.5bn, is known for the longterm holds of its 120 regional malls in the US. Brothers Martin and Matthew Bucksbaum founded the company in 1954 with a shopping centre in Iowa. GGP went public in the 1970s, only to sell 19 malls for roughly $800m and then take the company back private again in the mid1980s. In 1993, it went public again, growing through more than $25bn worth of acquisitions.

But recession hit and, overloaded with debt,

GGP’s stock price dropped nearly 97% as it teetered on the brink of bankruptcy.

Macerich (NYSE: MAC) Santa Monica, California-based Macerich, with a $12bn market cap, spent much of this year pushing off takeover attempts from Simon, its largest competitor. The company has spent the last decade or so growing through major takeovers of its own, spending more than $2.3bn on 11 shopping centres in

2005 and nearly $1.5bn on nine properties in 2002. Macerich went public in 1994 after growing through the 1980s one property at a time, making trophy buys on both US coasts. The company operates a portfolio of 55 million sq ft in more than 50 retail centres and outlet malls in 15 states.

Realty Income (NYSE: O) San Diego, California-based Realty Income has a market cap of about $11bn and is known for its monthly dividend practice. It generates revenue from more than 4,400 commercial properties in 49 US states and Puerto Rico. Launched in 1970 when William

and Evelyn Clark bought a Taco Bell, by the 1990s it had grown to 625 properties. The company went public in 1994 by issuing stock to its partnership base. Following its $1.9bn acquisition of American Realty Capital Trust in 2012, its revenue jumped more than 60%.

Kimco Realty (NYSE: KIM) New York-based Kimco Realty, with a market cap of $10bn and 725 properties, is the largest owner and operator of shopping centres in the US. Its 107 million sq ft portfolio spans nearly 40 US states, Canada, Puerto Rico and Chile. Founded in the 1960s by a group of individual retailcentre owners, the company’s strategy switched from the development of small retail centres to acquisitions in the 1980s.

Its latest endeavour has included what it calls “simplifying” the business by buying out many of its joint-venture partners and

exiting the Mexican market. Also this year, long-time CEO David Henry announced his retirement, with chief operating officer Conor Flynn named as his successor.

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RESHAPING RETAIL The Village at Westfield Topanga

Change or consolidate?

Shopping centres and, more generally retail, are undergoing something of a shift in the US. But where exactly are they headed, asks John Ryan?

T

HERE was a time in the US when developers built malls, people came and did some shopping, and profits were made. Those were halcyon days and mall builders, large and small, must have felt that as long as the bricks and mortar were in place, the good times would roll.

That was, in fairness, a long time ago. Today matters are different. Consumers are choosier and retailers know exactly what they want and where they want to be. The cities that are growing fast in the US tend to be the favoured destinations for retailers and devel-

opers alike, with names such as Austin and Phoenix, among others, regularly produced as examples of where the money is headed.

That said, according to California-based David Weinert, senior executive vice-president of leasing for Westfield’s US operation, with just “one or two malls a year being built in the US”, most of the development action could be more readily categorised as redevelopment activity. Westfield is, in fact, one of the few developers that will open a new mall next year, in New York’s World Trade Center.

Put simply, prime malls remain desirable and malls in secondary locations may be so if they are capable of being upgraded, but there is a very sizable rump of existing retail assets for which alternative uses are being sought. Like all sweeping generalisations, however, this one is riddled with exceptions and some of these are reasonably substantial.

“For the better malls in the US, business has never been better,” Weinert says, pointing to Westfield’s latest results in the US, which show 6% growth in the last finan-

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RESHAPING RETAIL “For the better malls in the US, business has never been better. Our focus is to develop nothing but flagship malls in the US and around the world” >>

cial year. He adds: “Our focus is to develop nothing but flagship malls in the US and around the world.”

In terms of Westfield’s US activities, Weinert cites The Village at Westfield Topanga on the fringe of Los Angeles. “We’ve had excellent results here,” he says. “It’s a lifestyle shopping centre just across the road from a mall.” He observes that, in the normal run of things, this would mean competition for the mall, but insists that the offer is complementary, rather than competitive. This may be so, but it is also very probably the case that, as one new mall opens or an old one is redeveloped, so another scheme sees a reduction in footfall.

Richard Latella, executive managing director of valuation and advisory at Cushman & Wakefield, notes that shopping centres in the US remain a competitive arena. There has been, he adds, a shift in emphasis, bringing new challenges for mall developers and operators: “In the urban areas, newer formats continue to find favour and the big boxes have responded by coming into the cities with smaller formats. The other thing that is having to be dealt with is ‘showrooming’ and the ability of retailers to respond to this.”

In the cities, the new format phenomenon can be seen with the recent US debut of value-fashion retailer Primark. Latella says that the ability of new arrivals to work from a clean slate and move into properties that might not otherwise have been used puts them in a strong position. It also means that the urban landscap is altering. Primark opened in Boston in September and opens in seven further locations over the next 12 to 18 months, in spaces leased from Sears.

Primark’s deal with Sears indicates the direction of travel for many of the more traditional US retailers (a substantial proportion of which are predominantly mall-based).

Latella notes that Sears, which has had a torrid time for a number of years, has acted to try to turn things around: “They spun off

about 200 stores into a REIT. They had a lot of department stores and department-store owners tend to be real estate rich. There has been a big push by retailers like this to monetise their real estate.”

The Primark move is a prime example of this trend in action. Latella says that REITs have been rather more flexible and that, by moving stores into them, sub-lets have become more possible and other uses have been found for what might otherwise have been largely redundant portfolios.

When it comes to formats, department stores have had to shift with the times, Latella observes. “Stores that cater to everybody with everything have had to change quite a lot in the US,” he says. Now, department stores are becoming more specialist and reinventing what they do in the cities, as well as heading out to the malls.” He cites the Macy’s flagship on New York’s 34th Street as a case in point. “Over a five-year period, they have spent $500m,” he says.

David Weinert

“They have been aiming to rejuvenate the store by creating stores-in-store that address the needs of millennials.”

Latella sees the lifestyle malls referenced by Weinert as something of a bandwagon on to which too many developers jumped: “As a sector it just got over-built.” He cautions, however, that there is still room for this kind of mall in the “higher demographic areas”. The problem, he adds, is that so many malls of this kind have been built that when “somebody went dark” (aka closed), other retailers would look for rent relief, as this would be deemed to be evidence that a mall was not working.

The shopping centres that are currently being built in the US tend to be 500,000 sq ft or more. This reflects the trend for building malls in locations to which people are moving and creating destinations based on breadth of choice and the inclusion of leisure. Simply by dint of their size, these schemes are more likely to be insulated from trouble, according to Latella, as well

Macy’s on 34th Street, New York has invested $500m

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“Stores that cater to everybody with everything have had to change quite a lot in the US” Richard Latella

as from tenants that decide to call time on their leases.

Finally, mention should be made of outlet centres. Drive along almost any freeway in the US and it is an odds-on certainty that you will pass an outlet mall as you approach a major city. Latella says that the true outlet centres — those that acted as clearance locations for retail brands — “went away” and those that are left are in reality “premium label centres”. Having survived the lean times in the last decade, these centres are stronger and look set to stay the course.

So where does this take the retail property sector and mall developers in the US? Weinert says: “There has certainly been over-building in places, but there are a lot of retailers out there with OTB [open to buy] who have a hunger to expand.” Noting that retailers such as Gap, Anne Taylor and J Crew are still “trying to figure out what they want to do about fashion”, he says that the outlook remains generally positive.

The nature of anchor tenants is changing, too, according to Weinert: “Landlords are seriously looking at Eataly, among others, as an anchor.” If this is the case, then the melding of leisure, dining and retail, which Eataly represents, is perhaps symptomatic of the shifting sands in mall occupation and tenant mix.

It would appear that the bad times for many mall developers are over, for the moment at least, but that does not mean that things are set fair in all quarters. The US, principally owing to its size and diversity, remains a country that has pockets of deep affluence alongside areas of grinding poverty. Mall construction, refurbishment and change are therefore a direct reflection of location. Much to play for, then, but a great deal depends on where you are and what you are building — or rebuilding. n

WILL MACY’S TAKE THE REIT ROUTE? US DEPARTMENT stores have been among the hardest hit businesses since online shopping started to dominate the consumer market. In an effort to boost declining revenues, some of the US’ oldest retailers see their real estate as a solution.

Macy’s may have to look to monetising its real estate soon. The mid-range department-store chain announced in early September that it would be shutting down about 5% of its stores — up to 40 — early next year. At the same time, it is holding on to billions of dollars’ worth of real estate, and investors want a piece of the action that some of its competitors are seeing.

Last year, Sears — another staple US department store battling demographics and online retail — decided to spin its real estate holdings into a REIT, later named Seritage Growth Properties (SRG). The IPO was launched this July, when the REIT was valued at $2.7bn.

SRG was trading at $38 per share after the market closed on September 28, down from the stock’s peak of $44.31 in mid-August. Because of the sale, Sears Holdings — the parent company resulting from the 2005 merger of Sears

and US discount department store chain Kmart — and Sears Canada have posted profits since the spin-off, although sales have continued drop and it has continued to close stores.

Macy’s is bigger than Sears and its New York City flagship store — valued at nearly $4bn by its owner, Toronto-based Hudson’s Bay Co — is likely worth more than all of Seritage’s holdings combined.

New investors into the publicly traded department store have suggested Macy’s follow Sears’ lead, because many of its stores are better located than Sears and Kmart properties, thus would provide a greater windfall for investors. But so far, the department store that markets itself as “magic” has decided that’s a trick it is not yet ready to pull out of its sleeve.

Ethan Rothstein is Bisnow Media’s lead DC commercial real estate reporter

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RETAILERS iStockphoto.com/liravega

Who to watch in the US

The US market has long proved an exciting breeding ground for expansion, both for domestic and international retailers. Now, thanks to sustained economic growth, retailers are upping their ambitions, writes Liz Morrell

A

RECENT report on retailing in the US, published in June by Euromonitor International, suggests that in 2014 the US economy saw its strongest growth since the start of the recession — a pattern that has continued this year. Coinciding with monthly job growth and the lowest unemployment rate since 2008, these factors combined have led to an increase in both consumer confidence and spend that retailers are eager to take advantage of through expansion.

But shoppers are still after bargains, leading to a particularly strong growth in expansion among value and discount retailers. “People are still trying to find a bargain, even though they are feeling better off. That bargain and discount mentality is entrenched,” says Neil Saunders, managing director of retail research agency and consulting firm Columino, which is based in the US. “One of the most hungry segments for growth are the dollar stores, which are not online and are a very local proposition, but are very fast paced on opening,” Saunders adds. Family Dollar plans 375 new stores, while Dollar General, which tried to buy Family Dollar last year, is planning around 730 new stores, growing its footprint by 6%. Dollar General, which is also relocating or remodelling 875 stores,

revealed in August that it plans to add a further 7% in 2016.

The desire for value is driving international discount retailers’ growth in the US too. Aldi, for example, is succeeding where its fellow international grocery rivals have failed. It currently has 1,400 stores in 32 states, but plans a further 650 to take it to nearly 2,000 US stores by the end of 2018.

“The US market is very regional, fragmented and tough, but Aldi is seeing really good

growth and is one of the few foreign grocery retailers to have made a success of coming to the US,” says Saunders, who points out that many grocers have had to rethink their pricing strategies as a result.

It is a success that Lidl hopes to emulate.

The retailer revealed in June that it had finally secured premises for its US headquarters and distribution centre. It is understood to be opening up to 100 stores initially, although reports have said the company could open 500 by 2018, with 2,000 by 2020.

Fast-fashion favourite, Forever 21 plans to double in size in three years

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CHICO’S PLANS FOR MORE GROWTH OUTSIDE ITS DOMESTIC MARKET THIS IS Chico’s second year at MAPIC and the company is coming to make connections, with the ultimate goal of finding the right franchise partners to help Chico’s, White House Black Market and Soma continue to expand outside the US. “Since our first Chico’s boutique opened over 30 years ago, Chico’s, and its sister brands – White House Black Market and Soma — have experienced fantastic growth, evolving from one boutique to over 1,550 boutiques and outlets throughout the US and Canada, as well as an online presence for each of our brands,” says Eduardo Carneiro, senior director, international finance and business development, Chico’s FAS. “Recently, we’ve expanded to markets outside of the US, including Canada and Mexico, where Chico’s is performing as one of the top brands in Liverpool’s Mexico portfolio. Our customer target is women 30+ years of age, a market that has been under-served in the fashion industry. Thus, we continue to look for international markets and franchise partners to make our boutiques accessible to styleminded women across the globe.”

The company started on Sanibel Island, Florida, and expanded in resort locations, tapping into women who were on vacation.

The boutiques feature comfortable areas for women to shop, including large and inviting fitting rooms, where associates are available to style the shopper.

“In international stores, we infuse local preferences and culture into our store design,” Carneiro says. “For example, in

“We plan to build on the foundation that has made Lidl successful in Europe, while creating a unique shopping experience for American consumers that is unlike anything in the market,” says John Froman, marketing manager for Lidl in the US. Continuing the popularity of value entrants is the launch of Primark, which opened in Boston in September, a month after launching a US-dedicated website. The opening of the 77,000 sq ft four-floor store has brought to the US prices that are said to be 20% lower than Forever 21, 30% lower than Old Navy and 40% lower than H&M. “I think people were genuinely surprised about the prices and how low they were,” Saunders says. “That does suggest that Primark has done in the US what it has done everywhere, which is trumped everyone else on price, the impact of which will ultimately bring down prices.”

Primark is planning nine stores in the US by 2016, with the next one after Boston open-

Mexico, we’ve paired Chico’s core design elements with a more cosmopolitan look that fits the aesthetic preference of Mexican female shoppers. We’ve replaced distressed and natural wood with darker and polished tones. Our merchandise assortment is also carefully curated based on location.”

Chico’s: international and local

“We plan to build on the foundation that has made Lidl successful in Europe, while creating a unique shopping experience for American consumers” John Froman

ing in the King of Prussia mall in Philadelphia — one of the biggest malls in the US — in November.

Primark is taking advantage of a trend for fast fashion in general, according to Jesse Tron, director of communications and media relations for the International Council of Shopping Centres (ICSC). “Where we are seeing the biggest movement is in fast fashion, with brands like H&M, Forever 21, Zara and now Primark, moving into malls and shopping centres,” he says. It’s a consumer-driven trend, he adds, observing that people are increasingly interested in making a few high-end purchases “and then filling in the rest of their wardrobes with high turnover goods”.

TJX is also moving forward with a successful expansion in the US, while Forever 21 is continuing to push hard in both the US and internationally with plans to double in size with 600 new stores in the next three years.

At the higher end, UK entrants such as

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RETAILERS CHARMING CHARLIE OPENS ON FIFTH AVENUE THE FLAGSHIP Charming Charlie — the retailer’s first store in New York City — opened in June on Fifth Avenue. Callison designed the three-storey space with a grand staircase and seven themed fitting rooms. The global architecture and design firm collaborated closely with Charming Charlie to showcase the brand’s fashions and accessories in a 16,000 sq ft (1,486 sq m) flagship.

Charming Charlie is a women’s fashion, jewellery and accessories offer with nearly 350 stores in North America. The new design concept features curated displays of merchandise unique to the flagship.

“The Fifth Avenue flagship has the opportunity to capture and introduce the Charming Charlie experience to the tourists and locals that visit Fifth Avenue,” says Tom Pulk, creative director at Callison’s New York office.

The new design builds on the strategy of merchandising by colour. Vibrant hues are used strategically throughout the threestorey store to naturally direct the customer’s eye to merchandise zones, which are organised and displayed by colour.“We set out

to create a whimsical introduction to the Charming Charlie brand that Manhattan’s fashion-forward shoppers would remember,” says Callison associate principal Leslie Ann Chiu, the lead designer on the project.

Charming Charlie: charming Fifth Avenue

“Where we are seeing the biggest movement is in fast fashion, with brands like H&M, Forever 21, Zara and now Primark, moving into malls and shopping centres” >>

Hobbs and Reiss will be hoping to emulate the success of Ted Baker, which reported a 37.4% rise in US sales in its half-year results in October as it continues its own successful expansion.

Another huge trend that is driving retail expansion is “athleisure”, with retailers from Kit and Ace, Lululemon and Under Armour all growing strongly in the US. “In the last year, that’s really gained traction,” Tron says. And it is driving the expansion of like-minded retailers too, he adds: “In shopping centres, you are seeing more gyms and brands like this clustering, so you will get a gym, an athleisure retailer and a wellness type of retailer — that has been a real trend.”

This is also feeding through into general sports and fitness retailers, including the likes of Foot Locker. “It has driven a miniboom among those retailers that are ex-

posed to that market,” Saunders says.

And it’s a trend that is hitting the UK and Europe, too. “The likes of Kit and Ace are looking at expanding across Europe,” says James Ebel, director of Harper Dennis Hobbs (HDH).

He notes that Kit and Ace and Lululemon have both just opened in London, in Shoreditch and King’s Road respectively. “It’s a trend that’s not hit fully yet, but is definitely coming,” Ebel adds.

HDH represents a number of US retailers that are expanding outside of the US into the UK and Europe, including American Eagle, J Crew, Forever 21 and Club Monaco.

“All these are publicly listed companies that require growth and, to do that, they have to look at other markets,” Ebel says.

Another area to watch in the US is the growth of the healthcare and drugstore market as such stores become more central to everyday life. A number of US retailers in this space are now introducing healthcare and walk-in clinics. “It’s part of the move to

Jesse Tron

convenience,” Saunders says. “The likes of CVS aim to have 1,500 clinics by 2017, which is an enormous level of expansion. And Walgreens is also growing strongly and opening more clinics and health-benefit centres too.”

The convenience drive is also spawning more convenience formats as customers turn away from big-box shopping. Walmart, for example, as well as opening around 70 supercentres this year, will also open around 180 to 200 smaller format neighbourhood market stores.

And traditional pure plays are moving into physical stores too. Examples include eyeglass retailer Warby Parker, which opened its first physical outlet in 2013 and, by the end of this year, will have around 20 stores in the US; and fashion retailers Bonobos and Nasty Gal. Marc-Christian Riebe, founder, president and CEO of The Location Group, says Nasty Gal, which opened in November 2014, is a

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PINKBERRY PARTNERS FOR EXPANSION CALIFORNIA-based frozen-yoghurt specialist Pinkberry has expanded into 23 countries and opened its latest Japanese stores in the summer. However, vicepresident of global development Ryan Patel says that it is finding the right partners that has done much to dictate the company’s geographical spread.

“Obviously we have a plan, but expanding effectively is really about finding the right franchise partner,” Patel says. “So for example, we’ve been able to grow in the Middle East with Alshaya and in Japan with Royal Holdings. Meanwhile, we’ve now grown to 20 stores in Latin America, having found a good partner in that region [Peru, Chile, Panama, Dominican Republic, Puerto Rico and Venezuela].”

Pinkberry has now started to open

airport stores, including outlets in Dubai, Kuwait, Los Angeles and Atlanta. Patel also identifies Asian markets such as Thailand, the Philippines and India as countries to which he would like to take Pinkberry. That said, “the UK could be next”, he explains, as a potential partner has now been found.

Closer to home, Patel says the US openings are less about growth and more about adjusting a mature portfolio to optimise the estate. “The mood is pretty upbeat in the US at the moment,” he adds, while emphasising that retailers need to be on their game to attract shoppers. “But if you want to get the US consumer spending, you need the right product, the right concept and the right service.”

Pinkberry: on a global roll

Lululemon: growing strongly in the US

definite one to watch: “They are really exceptional and I am quite sure that they will open in Europe in two to three years time at the latest,” he says.

So what do retailers in the US need to offer to be successful in the market? Saunders says it’s a tough call: “The US market is very, very crowded and very competitive and each market is very difficult to do well in. That’s leading to a continued shake-out, including of the legacy retailers. What you need to be successful is price leadership, which is simple to say but operationally difficult to execute; a point of differentiation that has an element of added value, usually a combination of experience and really compelling products that people desire; and, underpinning that, you have to have an offer that is convenient in some way — ie, local, accessible or really strong e-commerce.” n

“What you need to be successful is price leadership, a point of differentiation and an offer that is convenient in some way”

Neil Saunders

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MARKET ENTRY

Coming to America H&M is just one of an influx of fast fashion retailers

More and more international retailers are moving into the US, prompted by strong economic recovery and a growing acceptance of foreign brands. But America isn’t for the fainthearted, warns Ben Cooper — the world’s largest retail market is also its most competitive

W

HEN the senior vice-president for global real estate at Gap says this is one of the “most exciting times to be in retail in the US”, it’s worth taking note.

But the world’s largest shopping market is also one of the toughest markets to enter.

So Gap’s David Zoba also has a warning: “If you don’t give the customer what they want, you’re on the way out.”

It’s a lesson many have learnt, some the hard way. While businesses such as Swedish fashion giant H&M and Spanish retail group Inditex have successfully made the step into the US, there are others that haven’t been able to make enough of an impact to become established.

So what do retailers need to know before they take on the US? What are the big

breaks in this land of opportunity? And why have many failed to make it work?

Irish retailer Primark is preparing to open its first store in the US this autumn. John Bason, finance director of Primark’s owner Associated British Foods (ABF), admits his company is likely to make some mistakes: “There is wide availability in the US. We recognise that.

We’re competing in a different marketplace.

These first couple of years we’ll be learning what it is the American consumer wants.”

Retailers know well that expansion in one’s domestic market is unwise without proper preparation, clearly defined objectives and a cautious if optimistic approach. Moving into a whole new market requires another level of thought and preparation.

Mark Burlton, global head of cross-border retail at international real estate agency Cushman & Wakefield, says that, before a retailer even considers branching out, they must be sure that their roots are solid. “There are a number of lessons that retailers need to learn when they going to the US,” he adds.

“If you’ve got any issues with your domestic business, then expansion into the US is probably not a good idea. Those retailers with a solid domestic portfolio with a healthy balance sheet are more likely to succeed than those that are still rationalising their existing store estates.”

But with US GDP growth in the second quarter of 2015 up 2.3% on the first quarter, driven largely by increased consumer spend and wage growth, the draw factor is undeni-

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ably great. So how do you crack this market, and where do you even begin planning a real estate portfolio?

“If you don’t give the customer what they want, you’re on the way out”

© Dalziel and Pow 2015

David Zoba

Primark has gone big and bold in Boston

For overseas retailers, the natural assumption is to head for New York. It’s the most iconic city with arguably the most similarities with home. With three of Europe’s biggest fashion groups — H&M, Arcadia and Inditex — all choosing Manhattan for their first stores in the US, it would seem an obvious choice.

But Burlton says it does not have to be the only choice: “Manhattan is the best opportunity in many ways, but it doesn’t have to be your first store — it is phenomenally expensive. If you pick a high street in another top city, that could be just as good for you. In the first wave, I would advise people to look in and around the north-east corridor of the US, particularly for European retailers. It gives you a good mix of malls and high streets, so that you can build a cluster of stores that will be easier to manage. They are also much more used to brands that are coming in from abroad.”

This is clearly the approach that Primark has taken — the retailer’s first store is in Boston.

But then Primark is something of a phenomenon. Its stores have become fashion statements in themselves, with teenagers proud to be seen chilling out outside them. Indeed, the stores’ big brown bag has become a must-have souvenir from a trip to Europe.

When a retailer with that much kudos opens up in a new market, its name precedes it.

For others, it tends to be much harder. In 2013, for example, UK grocery giant Tesco had to pull out of the US after its value chain, Fresh & Easy, failed to catch on.

When it first announced its plans for the US, Tesco had very high hopes. At the time, the then chief executive Terry Leahy said: “The United States is the largest economy in the world with strong forecast growth and a sophisticated retail market.” In the wake of the retailer’s departure seven years later, there were many theories as to why it had failed to make it in the US. One of them was that it had taken on too much — and had been too ambitious. Which raises another important lesson: appearances can be deceiving.

Burlton says that, while the sheer scale of the US can be both daunting and enticing, it should really be taken on in small doses.

“There’s a tendency to be too ambitious and think about 500 stores,” he says. “But initially you should think more like 12 to 20 and build it from there”. n

Arcadia’s Topshop made Fifth Avenue its starting point

“I would advise people to look in and around the north-east corridor of the US, particularly for European retailers” Mark Burlton

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iStockphoto.com/kmlmtz66

OUTWARD INVESTMENT

Not only are investment levels in global retail real estate back to pre-crisis levels, but US-based companies now make up a substantial slice of the pie. Ben Cooper looks at the Americans expanding into new markets

Back to business as usual

I

T’S BEEN a long, tough time since the big crash in 2008. With the sudden freezing of global credit lines and the almost overnight halting of retail property construction, thousands of projects were put on hold, portfolios suspended and investors left in limbo.

But among those stalled plans was a phenomenon that went beyond single companies or funds: waves of US capital were sweeping into the European retail property market. Throughout the continent, diverse markets were providing new opportunities for investors — from prime, established global cities such as Berlin, London and Paris, to the emerging markets in Eastern and Central Europe, it was a golden age of investment.

The fact that investment activity has finally reached and exceeded pre-crash levels is a moment that the whole international real estate market should celebrate. In July, international real estate consultancy JLL iden-

tified €26bn worth of retail investment transactions in the first half of the year alone, up 28% on the same period in 2014. Commenting on the surge, JLL’s international director

“We are witnessing robust growth in the retail investment market and much of this is down to the fact that all geographies are transacting” Jeremy Eddy

of retail capital markets, Jeremy Eddy, said: “We are witnessing robust growth in the retail investment market and much of this is down to the fact that all geographies are transacting. Markets such as Finland, Portugal and the Czech Republic are taking a much larger share of transactions this H1 than in H1 2014 and feature heavily in the largest 10 deals of the year so far. These markets are having a significant impact on volumes.”

But the really interesting thing is where the money is coming from. Of all the foreign investors pouring into Europe, according to JLL, the biggest transactions are from the US funds.

Within this wider trend, there is plenty of exciting news. Major US investor Thor Equities has big plans for Europe, with €9bn in equity and debt to invest across all real estate markets and the appointment of a European director to lead the acquisition programme.

In August, it acquired its first Spanish prop-

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erty — a €15m prime retail asset in Madrid.

This followed a major buy-up of space on London’s famous Oxford Street in April.

US pension fund New Jersey Division of Investment has set aside €90m of capital, with its eyes on retail property throughout the continent, from the UK to the CEE region. Blackstone has also been highly active with a string of acquisitions, not least the 22,000 sq m Palmanova Outlet Village between Trieste and Venice, which it secured through its subsidiary Multi Corporation in June. It quickly followed this with the €500m purchase of three shopping centres across Spain and Portugal, also to be managed by Multi.

Since last year’s MAPIC, Multi has also been busy on the development front, completing the construction of the 54,000 sq m Forum Diyarbakır mall with Turkish developer Altındag, and getting under way with building the 63,000 sq m Forum Gdansk in Poland.

And in one of the largest real estate deals anywhere in the world since 2008, Blackstone and San Francisco-based bank Wells Fargo secured the $23bn acquisition of the bulk of GE Capital Real Estate — General Electric’s real estate assets. As part of the deal, Blackstone has acquired GE’s European equity real estate assets, including a raft of retail property via its Blackstone Real Estate Partners Europe IV fund.

In August, another giant of US investment, Kennedy Wilson, acquired a chain of 16 su-

permarkets in Spain, including 11 Carrefour stores, through its London-listed Kennedy Wilson Europe (KWE) real estate division.

Commenting on the acquisition, KWE president and CEO Mary Ricks said: “The prime high-street units are 29% under-rented at today’s ERVs [estimated rental values].

This, coupled with our ability to grow rents through the CPI index-linked leases as the economy recovers and Spanish consumer spending improves, and the re-setting to market rents through upward-only rent reviews every six years, will deliver another lever to create value.”

With European retail property investment officially now exceeding the pre-crash levels, it would seem the drought is over. Agency DTZ is predicting total retail transactions of €52bn to have been completed in the continent by the time the year is out, beating the biggest year on record in 2006 and setting up the markets for a strong year in 2016.

The UK remains the prime target for investment, followed by Germany and France. But as Multi and New Jersey have demonstrated this year, there is plenty of potential for the growth markets in the east and US investors are clearly keen on the Iberian Peninsula.

Uncertainties remain, however. The political situation in Greece is far from stable and the migrant crisis has thrown much of the region into turmoil. But with records set to be broken and the likes of Blackstone, Thor and Kennedy Wilson still with ambitious shopping lists to work through, it’s as close to business as usual as possible. n

Thor Equities bought in Cannes

“The prime highstreet units are 29% under-rented at today’s ERVs” Mary Ricks

Blackstone’s Multi is developing Forum Gdansk

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