Tribune-Review
Small space good fit for many stores
Sam Spatter
Sunday, October 2, 2005

For some retailers, such as Family Dollar Stores, going small is better than going big.

These retailers prefer from 10,000 to 35,000 square feet in a small strip center instead of a large indoor mall or shopping complex containing about 1 million square feet.

Strip or community shopping centers have experienced a boom in construction over the past few years in the Pittsburgh region. But the boom has been restricted because of competition for available land. Retailers locate in these centers because they offer greater exposure compared to large malls, and because the rental rates are lower compared to the major malls.

"We like to locate where our customers are, families earning in the $40,000 or lower range," said Bob Lasser, Family Dollar's real estate manager for Pennsylvania and West Virginia, whose office is in Forest Hills.

"Actually, malls are too expensive for us. We prefer the more affordable strip or neighborhood centers," he said.

Lasser said his company, with 230 stores in Pennsylvania, prefers stores of 7,500 to 10,000 square feet and 50-foot frontage. One of his more recent deals is placing a store in the city's Hill District, although special arrangements had to be worked out with the city regarding customer parking and unloading. That store may open in the spring.

Grubb & Ellis, in its second quarter 2005 Retail Market Trends report on Pittsburgh, noted that unanchored 10,000 to 25,000-square-foot strip centers are in demand.

"Smaller tenants, seeking identity and wishing to capitalize on locations in proximity to existing retail traffic patterns and heavily 'shadow' anchored by a regional mall or major regional retail draw, are creating this demand," the company said.

Grubb & Ellis predicts that during the remainder of the year and into 2006, there will be continued demand in regional submarkets for the small sites, and for big box and discount retailers -- such as Wal-Mart, Lowe's, Home Depot, Best Buy, Target and Kohl's -- to further penetrate the market.

Neighborhood strip centers ask rental rates range from $13 to $23 per square foot while regional strip centers are asking from $16 to $35. The higher amount is reported in Pittsburgh's Downtown area.

"Rental rates can be about $4.60 per square foot in a strip mall, while it can be five times as much in a large mall," said Leonard Silk of Silk & Stewart Development Co. in Squirrel Hill, which operates 21 commercial facilities -- many of them strip centers -- in the Pittsburgh region.

Another retailer who favors strip malls is Big Lots.

"We like the economic advantage of entering strip malls compared to the large regional malls,"" said Kent Larsson, senior vice president, marketing.

The Columbus-based company, with 15,034 stores, likes to go into someone else's abandoned space, providing it has 28,000 to 30,000 square feet, he said.

"Normally, we become the major tenant in the center," he added.

"Besides the cost factor, it's a matter of these non-big box retailers finding their own identity in a smaller center," said Michael Hendrickson, president of Hendrickson Retail Group LLC in Pittsburgh. "These firms are not able to have their own identity in large shopping centers where big box retailers -- such as Wal Mart, Home Depot and Lowes -- dominate."

With many smaller retailers seeking this type of location, local and national real estate companies are building the smaller centers or purchasing existing ones and updating them. Usually, they are near major malls.

"These are known as shadow retail centers, ones located near or adjacent to major shopping complexes, such as Pittsburgh Mills," said Jim Kelly, vice president, investment group at Grubb & Ellis Pittsburgh office.

They tend to feed off the traffic created by the larger malls, yet maintain a larger identity in their center, he said.

An example is a 10,000-square-foot center Doppco Enterprises of Cleveland recently developed as part of the Village section at Pittsburgh Mills. It contains retailers such as Hollywood Tanning Salon, Great Clips and Mattress Discounters. Also expected to move in are Starbucks and Cold Stone Creamery.

"Tenants are looking to have more of these strip centers built, and several Pittsburgh based developers are providing that opportunity," Hendrickson said.

He identified Walnut Capital, based in Shadyside, as one participant along with Silk & Stewart.

"We have four strip centers currently under construction, usually ranging in size from 10,000 to 35,000 square feet," said Anthony "Tony" Dolan, a principal in Walnut Capital.

Dolan said there is a shortage of well-positioned retail space in this market, and one of the problems is the competition for land.

"Not only because of our topography, but because developers must pay higher land costs and higher improvement costs, because gasoline stations, stand-alone restaurants, pharmacies and other similar type developments all are seeking the same type of land, usually corner lots at traffic signals," he said.

"The smaller strip centers are viable centers where more retailers seek their identification. Some are convenience service retailers, others are destination retailers. Usually, it is not where soft goods or apparel shops locate," he said.

Walnut Capital has eight strip centers either built or under construction in southwestern Pennsylvania.

They are Penn Pace, Monroeville; Franklin Village, Franklin Park/Marshall Township; Lakeside Plaza, McMurray; Walnut Hollow Plaza, Murrysville; Orchard Park Plaza, Richland; 10 St. Francis Way, Cranberry; Salem Place at South Union, Uniontown; and Connellsville Towne Center, Connellsville.

In addition, the firm is planning to develop Centre Commons, Shadyside and a location in Hempfield, Westmoreland County. Also, a future center could be built on Brown Hill Road, Squirrel Hill, where Walnut has property currently under lease to a technical school.

The economics of operating a strip or neighborhood mall compared to a major mall is important, allowing locally owned ma-and-pa-type stores to operate, something not practical for them in big malls, Silk added.

Among the commercial facilities in the Pittsburgh region that Silk & Stewart operate are the 45,000-square-foot Waterdam Centre in McMurray, the 42,000-square-foot Lafayette Plaza in North Fayette, the 21,000-square-foot Cranberry Shoppes in Cranberry, and the 21,000-square-foot Northview Plaza, Ross.

It also has developments in Tennessee, Arizona, New Jersey and Canada.

Bill Bates, vice president real estate for Eat n' Park Restaurant, said, "Where we locate depends on the location and the type of store mix within the center."

"Where there is a Wal-Mart or a good mix of both big box shops and smaller retailers, such as in the Waterfront, we tend to locate there because they draw people," he said.

Stand-alone restaurants cannot depend entirely on being the destination for customers, he adds.

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