New construction accompanied by 2nd and 3rd chances for older properties
By TED CARTER
Metro Jackson’s retail development market is in a recovery year created by vacant space filling up and lease rates staying in place.
So concludes a close look at the metro retail market by Integra Realty Resources Inc. and detailed in its annual “Viewpoint” report for 2020.
It appears that enduring a mostly stagnant development market the past decade could now bring rewards for developers and the investors who back them. They are in a market in which empty space is getting scarcer and rent rates could begin to reflect this, says Integra Realty Resources, a national commercial real estate valuation and consulting firm with an office in Ridgeland.
The recovery, Integra says, is in a third and final phase aided by the limited amount of new retail construction since 2010. This should create faster absorption of existing retail space, the 2020 report says, forecasting expansion with new development within the next 12 to 18 months.
James “Jim” O. Turner II, an Integra managing director, expects the expansion to be accompanied by continued infill of some large vacant spaces as seen in recent years along the County Line Road corridor. “The second-generation space is, at least, backfilling,” Turner said in an interview, citing moves like retailer At Home’s infill of the former Sam’s Wholesale Club space on County Line.
“We’ve had some vacancy rates along the corridor decline, but you are getting that same class of retail tenant space, second-and-third generation retail use,” Turner noted.
Pre-used on County Line is fine with commercial broker Scott Overby, principal of The Overby Company in Jackson. Shifts in trade areas where County Line fixtures such as home décor retailers Pier 1 and Kirkland’s shut down while keeping open stores in Flowood and Madison reflect an eco-chain of sorts, according to Overby.
“Relocating corridors gives opportunities to backfill second- generation space at affordable rates with high-traffic counts,” he said.
Retailers “are not having to pay top dollar for new construction,” he added.
The Overby Company has Pier 1 as a tenant at North Regency Square. Overby said interest in Pier 1’s 9,000 square-foot space at Ridgewood Road and County Line has been strong since the retailer announced in January low sales are forcing it to vacate.
Overby attributes the interest to North Regency Square’s highway visibility and the 40,000 vehicles that daily travel the intersection it fronts. A six-figure renovation of the 61,300 square-foot three-floor center has further enhanced its appeal to tenants and shoppers.
Eight new tenants have been signed in the past year, Overby said. They include a Denny’s in the approximately 15,000 square feet vacated by Applebee’s, which departed over lease issues and not slack customer traffic. Overby noted long-time tenant and customer-traffic generator Party City recently renewed its lease.
Overby said he has also signed up four new tenants for space vacated at nearby Centre Park, just off County Line Road in Ridgeland.
Another positive for County Line came with the signing of two tenants for the former Kroger store on the corridor’s east end after four years of vacancy. Trampoline-based franchise Sky Zone and fitness center Crunch Fitness will divide the 62,000-square-foot building, the Mississippi Business Journal reported in August.
Multi-million-dollar renovations to County Line’s 958,000 square-foot Northpark Mall have helped solidify the corridor’s future, commercial real estate pros say. Yet more strengthening will come from the planned transformation of the UA Northpark 14 into a multi-screen theater with a bar area and power recliners.
“If you want to drop a tenant into as central a location as you can, County Line fits that,” Overby said.
Commercial real estate professional Micah McCullough would agree, though only partly. “I’ve historically been bullish on County Line,” said McCullough, vice president and associate broker at NAI UCR Properties in Jackson.
The thing is, McCullough added, “You can only have so many trampoline parks.”
The jury is still out on County Line, McCullough insisted, but added, “I hope I’m wrong.”
He said he worries that the closures of stores like Pier 1 and Kirkland’s signal the start of a struggle to backfill. “I’m afraid we’re going to start having more junior boxes (spaces from 10,000 to 20,000 square feet) empty than national retailers to backfill them,” he said.
Looking at the metro’s retail development as a whole, McCullough said Integra Realty Resources is on target with belief an expansion is getting under way. He credits a strong economy.
“I feel like we are in an expansion phase,” he said, and noted he is seeing more retail construction than in several years.
So has Overby, but it’s mostly in the premium retail types, he said. “If you are a higher-end retailer, we certainly have new construction going,” Overby added.
The broker cited a planned 58-acre development on Grandview Drive in Madison across from the Sam’s Wholesale Club. “We’ve got eight out-parcels and 50 acres on the interior tract with opportunities to do everything from major retail of 200,000 square feet to typical big- box and junior-box.”
The developers are completing site plans and a couple of national large users have been pitched, according to Overby.
More immediately, the $500 million Waterpointe project on 230 acres in Flowood will be home to 560 single-family residences and 800,000 square-feet of commercial space. Infrastructure work is under way for the mixed-use development south of Lakeland Drive just east of the East Metro Parkway. Construction is to be phased-in over at least 10 years, developer Southern Lifestyle Development says.
“It has a lot of real promise as a mixed-use,” said McCullough of NAI UCR Properties.
Other major retail activity cited in Integra Realty Resources’ 2020 Overview report included numerous automobile dealerships along Interstate 55 in Madison County, development of an amphitheater in Brandon, Renaissance Phase III in Ridgeland, continued development of The District at Eastover in Jackson and continued development of the Township at Colony Park in Ridgeland.
Looking at a distribution of metro Jackson’s 43 million square feet of retail inventory, Integra put neighborhood retail at 61.1 percent of the total with the rest divided between community retail and regional mall retail.
Going-in cap rates of 8 percent promise higher returns on community retail compared to the rest of the South, 7.1 percent; and the nation, 6.9 percent, Integra says. For neighborhood retail, Integra lists a going-in cap rate of 8.5 percent compared to 7.1 percent for both the region and nation.
Cap rates measure risks in a deal and are derived as a ratio between net operating income and the value of the retail property.
Integra’s Viewpoint notes metro Jackson’s community retail asking rent of $14 a square foot is below the region’s $18.8 and nation’s $22.3. Yet the metro’s community retail vacancy rate of 9 percent is higher than the region’s 8.2 percent and nation’s 8.3 percent.
The rent-rate picture is much the same for metro Jackson’s neighborhood retail which is listed at $12 a square foot compared to the region’s $17.2 percent and nation’s $20. Vacancy in the metro at 5 percent is lower than that of the region’s 8.6 percent and nation’s 8.5 percent.
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