Research & Forecast Report MINNEAPOLIS-ST. PAUL | RETAIL Q1 2017 The Changing Demographic of Consumers Presents a Break with Retailers of the Past Vacancy & Absorption Trends The vacancy rate in the Minneapolis-St. Paul retail market Market Indicators increased for the third straight quarter, rising to 6.1 percent in Relative to prior period Q1 2017 quarter one of 2017. Vacancy has been steadily increasing from VACANCY end of year 2015 when at that time, it was at 4.4 percent. There was 28,426 square feet of negative absorption, which was NET ABSORPTION largely due to regional shopping centers metro-wide reporting RENTAL RATE negative 152,446 square feet of absorption. Some of the negative absorption was due to Sears closing in Coon Rapids, vacating 132,700 square feet. Net Absorption Changes on the Horizon for Fast Casual Dining 872,912 1,111,241 Fast casual retail expansion activity continues to remain strong in 1,000,000 632,849 508,759 431,134 the Twin Cities, while long-standing sit-down chain restaurants like 500,000 251,879 Applebee’s, Ruby Tuesday’s and Buffalo Wing Wings are projected 0 (28,426) to decline as diners are consistently opting for convenience, (246,509) (143,478) SF Absorbed affordability and healthier options. The competitive and ever- (500,000) (335,329) changing nature of the restaurant retail landscape is forcing the (1,000,000) (962,017) retail giants of the past to reinvent themselves as newcomers in 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 the market continue to emerge. Buffalo Wild Wings is closing two Twin Cities PizzaRev restaurants, one in Edina’s Centennial Lakes and the other at Hopkins’ Knollwood Crossing. The chains were Vacancy opened three years ago as franchisees of the California chain. Buffalo Wild Wings confirmed the restaurants would close, but did 10% not give a specific date. 6.9% 7.3% 6.8% 8% 6.2% 6.1% 5.1% 5.4% 6% 5.7% Fast casual restaurants are also facing the upcoming policy change 4.9% 3.6% 4.4% of a $15 minimum wage increase, which could mean an increase 4% Percent Vacant Percent in menu prices. Automation is projected to take away minimum 2% wage jobs with the potential for one robot to replace six jobs as 0 referenced in a recent Wall Street Journal article. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 SUBSCRIBE TO OUR BLOG Retail showroom at new 120,000-square-foot Schneiderman's location in Lakeville, MN. 2 Minneapolis-St. Paul Research & Forecast Report | Q1 2017 | Retail | Colliers International Quality Over Quantity Consumers today are shifting their focus on high-quality goods to The remodel will include the expansion of more fresh and prepared stores that promote sustainability and have embraced the do- foods, updated finishes and an expanded Starbucks. Additionally, gooder culture of millennials. As consumers continue on their Target will remodel its St. Paul Midway store and St. Louis Park ‘health kicks’ they also are more aware of ethics and backgrounds location. of companies and are more prone to purchase consumer goods from a company with a respected mission, even if the product is Going against the trend, two major furniture outlets are expanding more expensive. The Minneapolis North Loop’s Warby Parker and their showrooms in the Twin Cities market. HOM Furniture is Askov Finalyson are prime examples. planning a Brooklyn Center store at Shingle Creek Crossing, a building formerly home to Kohl’s. HOM has proposed to renovate the 75,000 SF building and will add 24,600 SF of additional space. Big Box Retailers The remodel will create space for 11,800 square feet of new Many shopping centers are seeing an exodus of big-box retailers. multitenant retail space and close to 13,000 SF of storage space. As large, well-known players continue to announce store closures like Sears and JCPenney, property owners and landlords are being Additionally, Schneiderman’s furniture built a two-level Lakeville forced to either search for another large retailer to fill the space, or showroom totaling over 120,000 square feet. The showroom demolish the space and begin leasing smaller amounts of space. recently opened next to Gander Mountain near the Interstate 35 / Both options become time consuming and expensive. It’s not clear Kenwood Trail interchange. Design-build by Opus Companies. whether the malls who do not transform themselves into something else will survive. The departure of large anchor tenants are forcing Future Outlook owners to redevelop and adapt to a changing demographic. The High interest rates are projected over the next 12 months, while owners who do not see this as an opportunity may not fare as well. construction deals and a low cap environment is projected to stay in place. If one thing is continuing to remain constant in the world Gordmans, the most recent in a string of big-box retailers of retail, it’s the amount of change. Retail concepts of the past are announcing closures, will shutter five of six stores as a result of not satisfying a changing demographic of consumers, forcing many their Chapter 11 bankruptcy filing. One store in Woodbury will retailers to think more innovatively and creatively, or fade into the remain open. past. This will be a trend we’ll continue to see as more retailers look for the differentiator that allows them to stay attractive and Gander Mountain has been purchased by Camping World and all relevant to today's consumer. 126 locations will begin selling off merchandise. Gander Mountain's new owner says they will keep 70 Gander Mountain locations open. As an example of a big-box retailer reinventing itself, Target Corp. announced its plan to remodel their downtown flagship store, an endeavor that will cost the corporation close to $10 million. Minneapolis-St. Paul Research & Forecast Report | Q1 2017 | Retail | Colliers International 3 Tenant Tracker Expanding New or Looking Net Absorption - Q1 2017 Vacancy - Q1 2017 300,000 25% 150,000 71,721 20% 16.8% 7,471 44,828 15% 0 0 10% 8.0% SF Absorbed (150,000) Vacant Percent (152,446) 5% 5.3% 3.6% (300,000) 0% 0 CBD Community Neighborhood CBD Community Neighborhood Outlet Regional Outlet Regional 4 Minneapolis-St. Paul Research & Forecast Report | Q1 2017 | Retail | Colliers International Minneapolis-St. Paul Retail Trade Areas Please note for historical comparisons, since Q2 2016 we have added eight additional trade areas to our retail report: Plymouth, Coon Rapids, Stillwater, Blaine, Shakopee, West End, Brooklyn Center, and Cottage Grove. Data Summary TRADE AREA SF VACANT %VACANT Q1 2017 ABSORPTION YTD ABSORPTION Plymouth 1,976,620 10,845 0.5% (6,852) (6,852) Ridgedale 2,099,343 48,271 2.3% (19,782) (19,782) Apple Valley 2,054,496 88,974 4.3% 14,055 14,055 Maple Grove 5,037,849 117,820 2.3% (8,200) (8,200) Stillwater 2,562,007 63,729 2.5% (4,873) (4,873) Woodbury 3,371,769 98,329 2.9% (14,364) (14,364) Eagan Town Center 1,607,281 48,022 3.0% (6,216) (6,216) Coon Rapids 3,074,541 205,589 6.7% (99,565) (99,565) Rosedale 3,216,932 121,588 3.8% (25,283) (25,283) Southdale 5,256,356 149,907 2.9% 30,093 30,093 Blaine 1,805,869 65,097 3.6% 456 456 Shakopee 2,525,038 107,296 4.2% (837) (837) Burnsville 3,020,067 128,118 4.2% (323) (323) West End 1,276,323 74,316 5.8% (8,110) (8,110) Northtown 2,122,701 177,683 8.4% 25,202 25,202 Maplewood 1,875,383 136,835 7.3% 10,569 10,569 Brooklyn Center 1,061,525 87,511 8.2% (19,383) (19,383) South Robert 2,204,097 216,487 9.8% 8,680 8,680 Eden Prairie 2,472,209 279,673 11.3% 1,305 1,305 Cottage Grove 1,213,220 141,244 11.6% 1,902 1,902 Minneapolis-St. Paul Research & Forecast Report | Q1 2017 | Retail | Colliers International 5 Knowledge Leader: In Retail, Feeling Good is the New Looking Good As the new year gets underway, it always brings a certain level of paper butterfly art installation. The main attraction, the cocoon-like retrospection about how far each of us has come in fulfilling our Dome meditation room, includes a variety of seating options and goals, both personally and professionally. The next step for most blankets for optimal comfort. Guests participate in timed, audio- of us will be deciding what we can do better for ourselves. If you guided meditation sessions with aural and visual elements to are like most Americans, losing weight, living a healthier lifestyle encourage meditative reflection and relaxation. and enjoying life to the fullest rank in the top five of your list of resolutions for 2017. As Keledjian noted in a recent article, creating immersive experiences is his trademark: “I reimagined the concept of the The good news for retailers is that there are more and more specialty boutique when we founded Intermix, which disrupted the opportunities to meet the demand for fitness and mindfulness luxury shopping experience by styling different designers together regimens with bricks-and-mortar solutions. The global wellness in one space.” industry is a $3.7 trillion market that has expanded beyond physical training and nutrition to include mindfulness, meditation and And now he’s doing the same for health and wellness. Most of positive thinking.