The predominant trend within the Twin Cities retail community is ongoing development of shopping centers to accommodate the expansion of grocery, general merchandise, warehouse club and home improvement centers in the second- and-third tier suburbs. Leaders in this arena are Target, with its SuperTarget concept, as well as Sam’s Club and Wal-Mart. “I would expect this trend to continue in direct correlation with population growth,” says Chris Simmons, vice president/retail brokerage with Welsh Companies.

The much-anticipated opening of Block e in downtown Minneapolis, which occurred this fall, is a significant development as the only new retail construction downtown in some time. This 210,000-square-foot retail/entertainment center, developed by Chicago-based McCaffery Interests, incorporates a 15-screen Crown Theatre and 550-space parking garage, along with a 260-room Le Meridien Art + Tech hotel to be finished in April. The development also includes a variety of retail shops and restaurants, most notably Hard Rock Café and Borders Books & Music. Subsidized by the city of Minneapolis, Block e is connected via skyway to neighboring properties and expected to provide a major entertainment venue for downtown Minneapolis. “It is too early to tell, however, what Block e’s real impact will be on the retail environment downtown,” Simmons says. “Will Block e pull consumers from the suburbs or will it prove to be an attraction that primarily draws the city’s visiting travelers?”

In the northwest suburbs, Opus Northwest is developing Arbor Shoppes, a 500,000-square-foot lifestyle center in Maple Grove. The center, which is scheduled for completion this fall, will be anchored by Borders Books & Music, Ultimate Electronics (Audio King) and Cost Plus World Market. This project is the first true lifestyle center developed locally. The lifestyle center concept, an open-air mall with the traditional small shop tenants from a regional mall without the typical department store anchors, directly contrasts with the nine existing regional malls across the metro area that provide consumers with shelter from Minnesota weather. The success of the lifestyle center concept will be determined in part by consumers’ willingness to embrace the Minnesota cold.

A new lifestyle center also is in the offing for the east metro suburb of Woodbury. Already a popular retail hub, three developers are pursuing nearby sites in Woodbury for development of centers between 150,000 to 500,000 square feet. It remains to be seen whether it will be Opus Northwest, Madison Marquette or Robert Muir that successfully delivers the first lifestyle center in Woodbury.

While development activity has calmed down in comparison to recent years, consumerism continues to drive retail expansion. Consequently, developers are building retail centers to keep up with residential growth occurring throughout the metro area — primarily in third and fourth tier suburbs. In essence, the same few mass merchandisers are increasing their numbers to accommodate consumers within emerging communities.

The Twin Cities metropolitan statistical area is projected to grow by 600,000 residents prior to 2020, increasing the need for grocery, general merchandise and home improvement retailers, which generally follow residential development. Some mass retailers are pioneering into projected high-growth communities, that are not yet established, to position themselves for anticipated future residential growth.

Several developers in the Twin Cities specializing in retail projects are Opus Northwest, Ryan Companies US, Oppidan and Robert Muir. Ryan is active in developing centers anchored by Target, whereas the others have projects underway with Cub Foods. But ultimately, the site determines which developer works with a specific retailer.

Twin Cities’ consumers have had few new retail concepts to explore, with the exception of Cost Plus World Market which opened three stores this year. Lowe’s Home Improvement Warehouse is reportedly seeking sites, but it is uncertain if the retailer will enter the Twin Cities market.

While new retail concepts have been few and far between, new restaurants are plentiful across the Twin Cities. Notable national eateries that have entered the Twin Cities market include P.F. Chang’s China Bistro and The Cheesecake Factory. Demand continues locally for quick service restaurants, such as Starbuck’s, LeAnn Chin, Panera Bread, Noodles & Company, Chipolte and others competing for this fast growing segment.

According to Welsh Companies’ July 2002 Market Update, vacancy in the Twin Cities retail sector was 6.6 percent, a sharp contrast to the near 20 percent vacancies experienced in the office and industrial sectors. Despite the economic slowdown, the Twin Cities retail market has sustained a vacancy rate hovering near 7 percent for the past 4 years.

At present, it appears that regional malls are outperforming other centers with an overall inventory of 18 million square feet and vacancy of 4 percent. From a geographic standpoint, the southwest region of the Twin Cities metro area reports the lowest overall retail vacancy at 4.3 percent.

The northwestern portion of the metro area will continue to see major retail expansion as Twin Cities’ metropolitan residents and workers migrate toward the expanding outstate area of St. Cloud. The 60-mile Interstate 94 corridor that connects St. Cloud to the Twin Cities is one of the fastest growing corridors in the region and the Minnesota Department of Transportation is studying ways to facilitate mobility in anticipation of further growth.

Already residential growth in suburbs such as Maple Grove, Corcoran, Rogers, and Albertville is spurring retail expansion along this corridor. This is bound to continue, particularly as more and more people use I-94 for the commute to jobs in the Twin Cities.

Land prices for large developable retail tracts across the metro area continue to escalate even though rents and the national economy remain flat. Generally these land sites would involve development of a multi-tenant retail center as well as several outlot buildings. However, national retailers are feeling the effects of the economy and are not impervious to these escalating land costs.

Opportunity does exist, however, for expansion within existing real estate throughout the metro area. “With the recent closing of several Kmart stores and rumors of further closings, there are a number of large stores which could be available in high traffic locations throughout the Twin Cities. Look for established retailers to acquire these sites in geographic areas where expansion makes sense within their real estate strategy,” Simmons says.

Chris Simmons is vice president, retail brokerage with Welsh Companies.


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