NEW YORK — Bankruptcies and digital innovation.
This story first appeared in the December 15, 2014 issue of WWD. Subscribe Today.
Those were the key topics of discussion at the International Council of Shopping Centers New York/National Deal Making exhibition at the Jacob K. Javits Convention Center last week, where other subjects included the continuing struggles of B and C malls, developments in markets as far-flung as Silicon Valley, Turkey, the Middle East — and Brooklyn and Queens — and mall owners’ and developers’ ongoing concerns about protecting their centers from the digital incursion.
“Digital is transforming everything in life,” said William Taubman, chief operating officer of Taubman Centers. “It’s having an impact both positive and negative and is impacting the way stores are being run. We’re in the third inning. We put high-speed networks in all of our malls. We’re creating all of these apps.”
The first app launched at University Town Center in Sarasota, Fla., in October and could be rolled out to other Taubman properties. “The customer is researching online and visiting fewer stores in the mall,” Taubman said. “They’re not spending less time in the mall, but the trips are decreasing. We have to work to make it a better experience.”
WP Glimcher is trying to upgrade its malls with services. “We hope to get people to come to our properties more frequently,” said Michael Glimcher, vice chairman and chief executive officer, noting that rents are increasing, occupancy costs are up and sales are flat or up slightly. “We’re combining shopping with an L.A. Fitness or a hair or nail salon. We’re putting more grocers and restaurants in our centers. We’re even hiring a specialist to do food deals.”
Retailers are opening smaller stores, 5,000 square feet instead of 8,000 square feet, he said. Like many operators, Glimcher is looking to the athletic category for innovation. “Consumers aren’t buying $200 jeans, they’re buying $200 leggings and $300 sneakers,” he said.
“Women’s apparel in general is a little rough,” said Taubman. “With Delia’s bankruptcy, there’s no question that there’s been a pickup in bankruptcies. There’s still a couple of guys [that could file]. Business has been uneven.”
“All apparel has been a disaster,” said Mark Dufton, ceo of DJM Real Estate, an advisory, lending and investment firm. “Lately, it’s been Deb Shops and Delia’s. Teen apparel has been our busiest sector and teen apparel is going to continue. Uniqlo, H&M and Forever 21 are doing substantial business” and taking market share. Other retailers raising concerns include Aéropostale and Caché. “We used to restructure some leases so distressed retailers could survive,” Dufton said. “Now, they file and liquidate right away. They don’t restructure any more.”
A week after Art Basel Miami Beach, the spotlight was still on the city. “There’s a lot going on in the Miami market,” said Taubman, whose company is building Miami Worldcenter with the Forbes Co. “There’s huge business and very little retail. It’s an extremely profitable market and very fashion-oriented. Miami is a gateway city like New York.”
Worldcenter, located between South Beach and the business district, will have 1 million square feet of retail space anchored by Macy’s and Bloomingdale’s, residential units, convention space and a Marriott Marquis hotel. “Bal Harbour [Shops] will still have a lot of [high-end] brands,” Taubman said, referring to the area’s original upscale destination. “What we’re building is very much more of a mainstream product.”
Miami International Airport, which welcomes the most international passengers after New York’s John F. Kennedy International Airport, sees visitors coming from Europe and the Far East, not just Latin America and South America as in years past.
Tourism is one reason why the Miami Design District continues to attract luxury brands and is beginning to sign leases with contemporary labels. Melissa Gliatta, executive vice president of Thor Equities, the second-largest property owner in the Design District after Miami Design District Associates and its partners General Growth Properties and Ashkenazy Acquisition Corp., said some European retailers are interested in opening their first stores there, whereas New York was previously the target. “Brands with shops-in-shop in luxury department stores are looking for freestanding stores,” Gliatta said. “Brands with bridge [price points] and national tenants have expressed interest.”
Bal Harbour Shops, which saw several upscale tenants defect to the Design District, has invested in Swire Properties’ Brickell City Centre, a $1.05 billion, 5.4 million-square-foot mixed-use development opening next year. Brickell will have 565,000 square feet of retail space anchored by Saks Fifth Avenue. The center is aiming to complement Saks with upscale specialty stores, but it remains to be seen whether Miami can support multiple units for retailers with existing stores in Bal Harbour and the Design District.
Miami isn’t the only hot spot, though. The Irvine Co. is digging into Silicon Valley, where it’s building the 120,000-square-foot Los Olivos Marketplace, the area’s first ground-up retail development in seven years. Two miles from Levi’s Stadium in Santa Clara, Calif., Irvine is building a 1.5 million-square-foot office complex with 125,000 square feet of retail space. “Google, Apple and Facebook provide a high level of convenience to their employees,” said Mike Lyster, an Irvine spokesman, referring to the fact the companies offer everything from three meals a day to massages and nap pods. “We’re bringing a degree of that to this campus.”
In North San Jose and Santa Clara, Irvine will add retail space to two residential communities because what’s lacking “is dining and shopping,” Lyster said of the area, which will add 6,950 residents and 21,000 new office workers by 2018.
As for other population centers, rising asking rents in Brooklyn may shift some attention over to Queens, where Related Cos. and Sterling Enterprises are planning to build a mixed-use development with a 1 million-square-foot retail component at Willets Point west of Citi Field, some at the conference said. Robin Abrams, executive vice president of the Lansco Corp., said New York’s outer boroughs are becoming more attractive to tenants. Neiman Marcus Last Call, which last month unveiled its first Brooklyn store on Joralemon Street, is thrilled with the results so far.
“We’re talking to them about the boroughs,” Abrams said. “A few years ago, they never would have thought about going outside New York City. We believe Brooklyn could support another store and there could be one in Queens and perhaps even one in Harlem. Filene’s, Daffy’s and Loehmann’s went out of business. Neiman Marcus Last Call, Nordstrom Rack and Century 21 are all expanding.”
Rents in Manhattan retail corridors continue to climb undeterred. “The key cities have become more important in the Internet shopping age,” said Gliatta. “Locations like Fifth Avenue are going to continue to rise.”
Gliatta said the opening of Charming Charlie in a Thor-owned building at 445 Fifth Avenue “draws more attention to the fact that the Fifth Avenue corridor is continuing to strengthen all the way down to the Empire State building.”
At Hudson Yards, “the key was to get the Neiman [Marcus deal] done,” said Webber Hudson, executive vice president of Related Urban. “We’re engaged in 200,000 square feet of strategic deals that will be done by midyear.” Neiman’s will occupy “the penthouse” on the fifth, sixth and seventh floors of the 92-story project.
Stores on the first level will be 1,000 square feet to 5,000 square feet, with larger units — 15,000 square feet to 20,000 square feet — relegated to the higher floors. Related will again use food to drive traffic up the vertical mall as it did at the Shops at Columbus Circle, but Hudson said the food offerings at Yards won’t be as segregated.
“[We’re looking] for luxury brands,” Hudson said. “We’re talking about New York-born-and-bred brands, not the typical mall people, someone who has an urban edge. We want to make a neighborhood like Bond Street [in SoHo]. It’s such a little gem. There’s not one person on Bond Street that I wouldn’t want at Hudson Yards.”
Now that much of the leasing at Westfield World Trade Center is done, David Ruddick, executive director of leasing at Westfield Corp., said “We’re going back to our best centers in the best markets and we’re continuing to reposition with dining and meaningful fashion extending into luxury.”
“Technology is still very evident in new retail concepts,” Ruddick said, referring to Microsoft. “H&M is bringing COS and & Other Stories, which is great for refreshing interest. Lululemon, Under Armour and Nike are part of our daily dress code and wearable technology is on everyone’s mind.”
ECE, based in Hamburg, owns 200 shopping centers mainly in Germany that house retailers such as Apple, Hollister, H&M and Starbucks. “Germany is a big target for a lot of retailers,” said Klaus Rethmeier, director of international leasing. “The economy is very stable. Germans save 11 percent of their earnings. People are working.” Rethmeier said he met with Express, which is thinking about Germany. ECE has four projects under construction and just bought a center in Frankfurt for 800 million euros, or $997.4 million at current exchange.
Arabian Centres, the largest developer and mall owner in Saudi Arabia, has four projects in development: Al Dammam Mall in Dammam, Jouri Mall in Taif and the Al Hamra and Khaleej malls in Riyadh. Arabian Centres is also keen on bringing fashion brands licensed by its Fawaz Al Hokair division, such as New Yorker and FG4 London, to the U.S.
McArthurGlen Group, a developer and manager of designer outlets, will open two centers in Istanbul early next year. One will be on the European side of the city and the other will be on the Asian side.
Mark Siezen, European leasing director of Multi in The Netherlands, said the reason for Turkey’s appeal is its 5 to 10 percent growth per year. “We’re the dominant player in Turkey,” he said, noting that the government is getting more stable and tourism is on the rise. While he conceded that there’s not a lot of disposable income, “there’s a young population of growing middle-class consumers,” he said.