Guest post by Dale Watchowski, REDICO, and Chris Brochert, Lormax Stern
With recessionary pressures an increasingly distant memory, the Michigan retail landscape is moving into a cycle of growth that this impacted less by the stresses of the late 2000s and more by the retail and development trends the state has seen emerge during the last five-plus years.
One of the fascinating dichotomies in recent years has been the continuation of steady growth in a stabilized and increasingly robust Michigan retail market. It is noteworthy that, despite continued growth, there is a dearth of new development, a phenomenon being driven at least in part by the high cost of construction.
Currently the cost of construction is so high that retailers frequently cannot or will not pay the kind of rents required to substantiate the cost of new construction. This is actually a national problem, but it is particularly evident in Michigan at the moment. Even some developers who are moving forward on a new project are often able to do and make the numbers work as a result of government incentives, subsidies or financing (which obviously aren’t available for every project).
With very little new product coming online and a strengthening marketplace, available space is being absorbed rapidly. In fact, many areas across the state are approaching the point–which could come as early as 2017–when there will be very limited space for new occupants. And that is a very real consideration, given the fact that not only are existing retailers looking to expand, but new and emerging retailers have been more aggressive lately as they look to get into a Michigan market that continues to heat up.
Inevitably, rising demand for quality space coupled with continuing growth and a relative scarcity of new development has begun driving rents up, something we will see more of as we move into 2017. These trends have motivated an increasing number of tenants to be more proactive about committing to long-term renewals. Higher rents are also energizing developers and prompting them to move forward on both new builds and renovations/redevelopments to capture those rents. There has been a noticeable uptick in renovations and redevelopments over the last year, as more resources are being poured into existing centers, either to facilitate an expansion or to reconfigure larger anchor spaces into smaller formats (to maximize and reutilize space that was once deemed un-leasable).
Existing lifestyle centers have been forced to adapt and evolve, integrating more middle-market and service-oriented tenants, introducing more experiential components, and bringing in hot new retail concepts. Green Oak Village Place in Brighton, Michigan, is a classic example of this dynamic in action. Originally developed as a traditional lifestyle center in 2006, Green Oak Village Place has adjusted with the addition of more traditional power-center tenants, including names like HomeGoods, T.J. Maxx, Rally House and Charming Charlie.
These brands complement existing lifestyle tenants like Ann Taylor, LOFT, White House Black Market and Chico’s, broadening Green Oak Village Place’s appeal and presenting a wider range of brands and concepts to help drive traffic. The Village of Rochester Hills has successfully leveraged a new Whole Foods anchor and a strong marketing program to communicate information about special events and activities to enhance its status as a community resource.
Medical, health and fitness have all become a larger part of a more diverse retail landscape, but two of the hottest sectors are specialty grocery–with existing brands looking to expand and new concepts making their entry into the Detroit marketplace–and luxury theaters, where amenities like high-end food and bar service and reclining leather seats are proving to be a hit with moviegoers.
The hospitality sector side is also active, as a booming job market and manufacturing expansions are helping bring new residents–and visitors–to the region. It is noteworthy that home prices have gone up 5 percent during the last year, and with 10 percent fewer houses available on the market, we might see homebuilding pick up, which could also contribute to additional retail growth.
With the regional market heating up, especially in and around metro Detroit, we will soon see new ground-up developments moving forward. Two new projects–one in Northville at 5 Mile and Beck Road, and another in Bloomfield at Square Lake and Telegraph Road–will be breaking ground in late 2016 or early 2017, with anticipated late 2017 or early 2018 openings.
Given the fluid state of Michigan retail, industry professionals who want to position their projects for success would be wise to stay connected with the following trends and best practices:
In an increasingly competitive marketplace, retailers, landlords, owners, investors and management professionals alike have all had to become more sophisticated when it comes to keeping their finger on the pulse of consumer preferences and priorities. Understanding social trends and staying in tune with new concepts and popular new products and services is critically important for centers that wish to stay relevant and responsive. From new dining concepts to new entertainment brands, retail environments have become more diverse, engaging and immersive.
The experiential appeal of the best-performing centers begins with the tenant roster, but also includes design elements, sidewalk dining, interactive programming and other features that bring shoppers in and create a sense of activity and dynamism. The Mall at Partridge Creek in Macomb, Michigan, is a good example, with everything from bocce ball courts, interactive fountains, dog-friendly policies and facilities, and a large central space that hosts performance, community gatherings and other special events.
To stay relevant in retail, you need to evolve–or you get left behind. Existing centers that do not integrate new features and continue to bring in new tenants, new ideas and new energy can become stale and outdated. While a major renovation or expansion can make that happen, of course, it is also possible to stay fresh and new without such dramatic steps. Repositioning existing tenants, bringing in appealing new brands and new concepts, and making subtle, but thoughtful upgrades in high-profile aesthetic components like signage and new landscaping can make an outsized impact for a comparatively modest investment.
Don’t just make changes, let people know about them. High-impact messaging and sophisticated communications and marketing is critical for retail or mixed-use centers looking to maximize the impact of a renovation or signing a new tenant. In today’s world social media is obviously critically important. In concert with more traditional outreach and communications, it provides an ideal way to provide consumers with new updates and information, share information about upcoming promotions and special events, and build a loyal and connected group of consumers in the surrounding community.
In an evolving and competitive Michigan retail marketplace, these are the trends–and techniques–that will distinguish the brands and the destinations that will not just survive, but thrive in the months and years ahead.
Co-authored by Dale Watchowski, president of REDICO, and Chris Brochert, partner and business owner of Lormax Stern. For more information on REDICO, visit www.redico.com. For more information on Lormax Stern, visit www.lormaxstern.com.