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Strip, Neighborhood Centers Keep Their Edge

January 26, 2010

What's the difference between those neighborhood shopping centers with empty parking lots and those where shoppers have to circle the lot five times before finding a spot? It might just be that grocery store anchor.

At least that’s the thought of Claire Bitautas, senior vice president with the retail services group of NAI Hiffman, a commercial brokerage and management firm headquartered in the Chicago suburb of Oakbrook Terrace, Ill.

Bitautas says that basic neighborhood shopping centers with grocery store anchors tend to be faring better in today’s still-struggling economy than are shopping centers or malls anchored by retailers selling soft goods such as apparel, shoes or home furnishings and décor.

"Grocer-anchored strip centers are the ones that get the repeat business," Bitautas said. "People tend to drop off their clothes at the dry cleaners on their way to the grocer. They'll stop by the bank or the Mexican restaurant before they do their grocery shopping. In today's economy, people are still buying groceries. They're not, though, buying as much apparel or as many shoes."

Bitautas also agrees with the finding of Boxwood Means' January National & Regional Trends Update for the U.S. small-cap real estate markets: neighborhood shopping centers, even those without a Whole Foods, Trader Joe's or SuperValu, are outperforming their larger counterparts, the giant regional shopping malls.

According to Boxwood Means' January report, decreases in overall shopping center rents appear to be flattening out. Rents fell 0.51 percent, while they dropped 1.48 percent over the last three months.

These numbers suggest that things might be getting better in neighborhood and community centers. At least the rate of decline is slowing, and in today's economy that counts as good news. Retailers working in neighborhood and strip centers have even expressed some modest optimism, a rarity in today’s commercial real estate world.

James Barry, president of Colliers Barry, a commercial brokerage in Milwaukee, wasn't quite as positive. The retail sector in his region, mainly Milwaukee, is not poised to have a strong year.

Barry predicted that the retail sector in his region would launch no new projects during the entirety of 2010. But there was one slice of the retail market that didn’t make Barry glum: He did have some positive words for smaller neighborhood and strip centers, words that echoed the thoughts of Bitautas.

"Smaller centers that have a grocery or discount store anchor will have an advantage," Barry said. "But some of the bigger downtown malls, such as the Grand Avenue in Milwaukee, will continue to struggle until they can figure out a completely new approach to CBD retailing in smaller downtowns."

Bitautas said she's not surprised that it’s the smaller strip and neighborhood shopping centers that are performing well - though "well" is a relative term in the current economy: They're cheaper to operate and maintain than are the bigger regional shopping malls. And when people aren't shopping as much, low overhead can mean the difference between surviving and struggling.

"The large shopping malls have all those extra amenities," Bitautas said. "They have the Christmas decorations, the beautiful planters, all the extras that make a center beautiful. All those cost money. You think of the barebones strip center with the Whole Foods, dry cleaners, Edward Jones and a local restaurant. Those are the centers that are hanging in there today and doing well, partly because they don’t have the high overhead. It's a bit more manageable to maintain them."

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