There is so much general activity in our market right now that for those of us who lived through the 1980’s, it’s almost hard to fathom. This is true in retail as well as the general real estate market. How long does it last? The short answer is as long as the energy market remains vibrant. Given that there are not many red flags now, our best guess is the market remains strong for another two or three years. But, keep in mind that real estate is cyclical and tends to overheat in this type of environment. Retail isn’t there yet as evidenced by the results of our mid-year survey; overall vacancy is down to 8.3 percent. In the preferred submarkets with the newer retail developments (North, West Central & Moore/Norman) – along interstates with visibility & access to new housing growth – vacancy is under 6 percent. And, if you look at centers built since 2000, its pushing 3 percent. In essence, we have no available product in preferred areas. That is why most of our new retail in the last couple of years has been new stand-alone buildings and why several new developments are either breaking ground or on the drawing board.
It should be noted that our growth, both economic and the retail market, is not uniform. There are pockets of weakness in our retail market, we see some local retailers who are not doing as well. We attribute some of this to the simple dynamics of the market, but also to local tenants in some categories not being as well equipped to compete against internet retailers, more rapidly changing consumer tastes and more price-based competition. There is a significant amount of older somewhat functionally obsolete product in several submarkets as well – notably Eastern Oklahoma County, Northwest & South – which hurts these areas. As a result, vacancy rates in these submarkets are in the 12-15 percent range, although newer product in these submarkets performs well.
New & Expanding Retailers
The influx of new and expanding tenants continues. Winco, the discount grocer, is finalizing leases for four stores. Main Event broke ground on their first store in the market, and LA Fitness has two stores open with two more coming. Top Golf & Cabela’s are coming to Chisholm Creek. Gander Mountain is looking in the Moore-Norman area. Trader Joe’s & Fresh Market may finally be coming. West Elm is opening at the Triangle. Mathis Brothers is expanding their flagship store and their Sleep Center concept. Uptown Market is moving to northeast Oklahoma City & the Village; Crest is looking to add two more stores. These are only a few of the tenants looking and we haven’t even touched on the 800 pound retail gorilla in the room, Walmart. This demand has given rise to a number of new developments.
Development & Re-development
We’ve noted in the last few reports that existing developments continue to expand; this trend is going to continue. University North Park is building out the remaining pad sites of the original development and working on pre-leasing the second phase that is anticipated to include more boutique-oriented tenants. 19th Street in Moore has added and will continue to add more stand-alone buildings to the mix. Westgate is poised to expand south of Interstate 40. In addition to these major projects, there has been a significant increase in the number of small 10-20,000 square foot retail strips over the past year or so. We expect this to continue as well.
As to major new development, Chisholm Creek recently broke ground on its 180-acre mixed-use development between Western & Pennsylvania on Memorial Road that is to include retail, office, apartments, an entertainment venue, and a hotel & event center. A large park and numerous public areas are included in initial plans. The retail portion of the project will be kicked off by Top Golf and Cabela’s.
A regional developer has a handful of sites in north & west Oklahoma City & Edmond under contract and is working on pre-leasing the projects. The developer has a good track record and is working the deals aggressively; expect a couple of these to break ground in the next year. A Louisiana group continues to pre-lease the 170 acre Prairie West between Garth Brooks & Frisco in Yukon. Raptor is marketing their Interstate 35 and Covell project as well. Local developers are also working on multiple projects along Memorial road. While demand is good, it’s probably not sufficient to justify all the proposed projects in the near term. The projects out of the ground first in premium locations will be rewarded by the market.
Issues of Interest
Classen Curve/Nichols Hills Plaza: With Glimcher’s reputation as a developer and their relationships with retailers, the possibility of connecting these projects and bringing in national boutique tenants could transform this development into something special, particularly given its location. While Glimcher hasn’t revealed their plans, the feedback we hear from tenants is good and we anticipate a number of new tenant announcements in the upcoming year.
Plaza Mayor: This re-development remains a work in progress. A handful of small shop space has been leased but, to date, no anchor has been filled and the Mercado space has not opened. While we remain optimistic about the prospects of a successful conversion to a Hispanic oriented mall, it’s going to be a long-term process. The mall will be added back to the survey upon completion of the renovation.
Walmart: Perhaps we should have lead with Walmart’s expansion. Already the dominant retailer in our market and the dominant grocer, Walmart added a Sam’s Club at 15th & Interstate 35 in Edmond and is adding another in Moore and a third at 39th & May. This is one of the reasons Costco is tiptoeing into Oklahoma. Two new neighborhood markets have been opened this past year and Walmarts new Choctaw Supercenter is nearing completion. We anticipate the announcement of another Supercenter location and another Neighborhood Market or two in the upcoming months. Walmart is experimenting with an Express concept, but none are planned for our market at the moment. Another six or seven stores could be in the works that would open in 2015/2016.
Regional Malls: For all the talk nationally of regional malls being a dying breed, our three are performing very well. Penn Square Mall leads the state in per square foot sales at over $625 per square foot. This is the mall tenants want to be in. Simon just completed a limited renovation and continues to upgrade the tenant mix; more restaurants are coming to the mall soon. There is talk of expansion to the north, but it is complicated and probably won’t happen in the near term. General Growth has greatly strengthened Quail Springs Mall with the replacement of Sears with Von Maur. It is anticipated that this will allow them to gradually improve their overall tenant mix. The mall remains in the heart of Oklahoma City’s main retail corridor and should remain strong. Sooner Mall in Norman, not as big or prestigious as the other two, remains full nonetheless and posts good results. It should be noted that the Outlet Shoppes of Oklahoma continues to excel and does not appear to have hurt the sales of the three existing traditional malls.
Survey Footnote:
Our survey tracks 28.1 million square feet in 236 buildings of over 25,000 square feet and 12.6 million square feet of stand-alone buildings for a total market of 40.7 million square feet.
There continues to be a significant number of smaller strip centers in the market (under 25,000 s.f. in size). We would estimate there are easily 3.5 million square feet of these properties in the market.
View the 2014 Mid-Year Retail Survey here.
