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Business

Growth in First State shopping centers reflects national trend

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Delaware Public Media
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Retail is on the rebound, as more marquee merchants enter the market, shopping centers have fewer dark storefronts and malls record their highest occupancy rates in nearly two decades. 

That translates to more choices for consumers, who are showing signs of loosening their purse strings after years stuck in the economic doldrums.

The developer of Christiana Fashion Center, currently under construction, has announced three new-to-Delaware retailers: Nordstrom Rack, REI and, most recently, The Container Store, which has achieved a cult-like following among consumers.

Bringing a mix of fresh faces and familiar favorites is part of the strategy for signing tenants for the lifestyle center sited within eyeshot of Christiana Mall and two other big box centers, said Jim Oeste, vice president of real estate at Allied Retail Properties, the center developer.

Allied, which also owns Concord Mall, Merchant Square and Christiana Town Center, expects to announce more new tenants in coming weeks. The company isn’t naming names, but its current site plan includes Brooks Brothers, DSW, Saks Off Fifth Avenue, Ulta, Wine and Beyond and Whole Foods, as well as an entertainment center and a big box golf store.

The initial phase of the open-air center will be about 600,000 square feet and could ultimately expand to as much as 900,000 square feet. That’s significantly larger than Dover Mall.

In Rehoboth Beach, Tanger Outlets are one-third of the way through a massive makeover and currently boast a 99-percent occupancy rate, says Amy Norgate, general manage

Tanger added a bumper crop of stores this spring, including Vera Bradley, Bath and Body Works, The Limited, ECCO, Sperry and Francesca’s. An additional three or four retailers will be announced this summer, Norgate says. Most are replacing seasonal pop-up stores.

The Midway outlet has been refurbished and rebranded as Tanger Surfside, a name she says is more in keeping with its resort surroundings.

It’s also less confusing for consumers.

“The name change was an attempt to differentiate ourselves from the Midway shopping center across the street with the movie theater,” she says. “Also, our core customer from the DC/Baltimore markets didn’t know what Midway was, and thought it meant it was in the middle of Tanger Seaside and Tanger Bayside, causing more confusion.”

Not all retail development is evoking a positive vibe from prospective shoppers, especially in Sussex County.

The developer of Overbrook Towne Center, which would be the largest retail complex in Sussex County, has resubmitted a zoning proposal for 800,000 square feet of retail space, six pad sites totaling 60,000 square feet and more than 5,000 parking spaces on 114 acres at the intersection of Route 1 and Cave Neck Road in Milton.

Timonium, Md.-based developer Louis Di Bitonto withdrew plans for the controversial project in October, saying the development had become an election issue, then resubmitted it in January.

In March, residents from 15 communities formed the Overbrook Towne Center Coalition, expressing concerning regarding traffic, congestion and quality of life. In a press release, the group said its purpose it to “build understanding and dialogue regarding the potential impact of the size and scope of what would be the largest commercial project in the history of Sussex County.”

The developer is expected to go before the county planning commission on April 23 with a request to rezone the property from its current agricultural status to commercial use.

Outside Lewes, a 203,000-square-foot shopping center is on the drawing boards, batted back from a proposed 572,000 square feet that was turned down by the Sussex County Council. A compromise plan that would have involved more than 350,000 square feet also was rejected.

In other developments on the retail front, Christiana and the surrounding area continues its evolution into a retail behemoth. Developers have applied to build a mixed-use and residential and retail community on land formerly held by Cavaliers Country Club, hoping to appeal to employees at nearby Christiana Hospital and the University of Delaware.

A trade group for merchants, The National Retail Federation, also is bullish on this year’s sales. The NRF’s 2015 economic forecast projects sales will rise 4.1 percent, up from the 3.5 percent growth seen in 2014. That’s the biggest increase since 2011. (Numbers don’t include expenditures for restaurants, vehicles and gasoline.)

So what’s fueling the drive forward? Analysts point to a gelling economy, which is helping to solidify consumer confidence.

“The economy appears to finally have gained some real traction and after a somewhat turbulent 2014, we expect to see continued gains in economic activity in the year ahead,” Jack Kleinhenz, the NRF’s chief economist, said in a statement. “While Americans are benefiting from a pickup in wages and jobs and gains in the U.S. stock market, economic slack has been reduced.”  

The outlook continues to brighten for existing retail properties. The International Council of Shopping Centers (ICSC) and the National Council of Real Estate Investment Fiduciaries (NCREIF) recently released shopping center data for 2014 which showed record-level gains in rents, occupancy and net operating income.

Malls led the sector, with growth and productivity outperforming the retail industry overall.

Most notably, mall occupancy rates rose to 94 percent at the end of 2014, the highest level since 1987. Occupancy rates for all shopping center were 93 percent, since the economic downtown of September 2008.

Further, shopping centers made more money. Net operating income—meaning gross rental income plus any other income less operating expenses such as utilities, maintenance and taxes—saw it highest growth in the past 14 years at both shopping centers and malls.

The 37-year-old Christiana Mall capped its successful redevelopment with the debut of a 50,760-square-foot multiscreen theater opposite the Nordstrom anchor, on the heels of Cabela’s, a 100,000-square-foot regional mecca for outdoor enthusiasts.

In the broader picture, the new, three-year forecast by the Urban Land Institute’s Center for Capital Markets and Real Estate predicts retail vacancy rates will to drop from 11. 4 percent in 2014 to 10.9 percent in 2015, then continue to inch down as the market improves, to 10.5 percent in 2016 and 10.2 percent in 2017.

Higher occupancy rates will spark demand for space, which will be reflected in rents. Survey respondents expect rental rates to rise by 2 percent in 2015, 3 percent in 2016 and 2.9 percent in 20