columbiamarket)analysis)&) economic)development) …€¦ · columbiamarket)analysis)&)...

COLUMBIA MARKET ANALYSIS & ECONOMIC DEVELOPMENT SERVICES STUDY

Public Mee;ng #2 3/25/14

Retail & Development Strategies LLC (RDS); WTL+a; Folan Consul=ng; Gibbs Planning Group

Agenda

¨  Overview of the study process ¨  Understanding the market, industry standards & methodologies

¨  Real Estate Industry Overview & Columbia context ¤ Retail (Food & Beverage, Grocery Stores, Specialty Retail, Consumer Services)

¤ Office ¤ Residen=al ¤ Hotel/Hospitality

Study Phases

¨  Phase 1: Research, interviews & analysis; kick-‐off mee=ng

¨  Phase 2: Iden=fy market demand & exis=ng supply

¨  Phase 3: Iden=fy unmet market poten=als ¨  Phase 4: Recommenda=ons and redevelopment

strategies

Overview of the Study Process

¨  Study started in Autumn 2013; Public Mee=ng #1 held in December

¨  Tonight is Public Mee=ng #2 to present real estate market observa=ons within the overall Columbia context & study progress

¨  Public Mee=ng #3 April 23 – Review market analysis and supportable programs for Village Centers and GEDS

¨  Public Mee=ng #4 May 29 – Recommenda=ons and Strategies

Study Methodology

¨  Methodology for the study combines several approaches: ¤ Stakeholder interviews/direct market experience ¤ Use of industry sources such as U.S. Census, ESRI, CoStar, STR Global, and other resources as benchmarks

¤ Review of current documents/plans/policies ¤  Industry knowledge and suppor=ng data ¤ Market findings and opportuni=es will be basis for redevelopment strategies

Retail Industry

¨  Most distressed real estate class: satura=on from over-‐development, tenant consolida=ons & bankruptcies, difficult to finance

¨  Average household spending is down since the 2007—2009 recession

¨  Genera=onal shid aligns with spending differences ¨  Con=nued turmoil due to changing shopping paeerns, evolving business models, impacts of on-‐line sales, challenges to locally-‐owned businesses

Retail Center Types & Characteris;cs

Shopping(Centers:(Types(and(Characteristics

Types&of&Centers Typical&SF Anchor&Use(s)Typical&Site&

AreaTypical&Req'd&

Market&PopulationAvg&&trade&radius Typical&&Drive&Time

Convenience(Center 20,000(.(25,000 Minimarket/Convenience(store 2.4(acres 5,000(.(7,500 proximate up(to(5(minutesNeighborhood(Center 60,000(.(100,000 Supermarket/Grocery 5.10(acres 10,000(.40,000 1.5(mile 5(.(10(minutesCommunity(Center 100,000(.(300,000 Grocery,(Discount(Dept(Store 10.30(acres 40,000(.(150,000 3.5(miles 10(.(20(minutesPower(Center 250,000(.(600,000 4.5(product.specific(20KSF(stores 15.40(acres 75,000(.(150,000 5(.(10(miles 15(.(20((minutesRegional(Center 500,000(.(900,000 1(or(2(full(line(department(stores 40.80(acres 150,000(or(more 8(.(10(miles 20(.(25((minutesSuperregional(Center 1(million(to(2(million 3(or(more(full(line(department(stores 75.125(acres 350,000(to(500,000+ 12(.(15(miles 30(minutes((or(more)

Sources:&&ICSC,&ULI,&PWC,&Korpacz&RE&Investor&Survey,&RDS

Retail Center Types & Characteris;cs

¨  Columbia’s Village Centers fall within industry sizes for Neighborhood and Community Centers

¨  Grocery anchor strategy pre-‐dates new compe==on and industry changes

¨  Center ownership varies in level of re-‐investment & management

¨  Columbia Mall/Downtown Columbia was/will remain THE major shopping des=na=on for specialty, apparel, accessories, shoes, etc.

¨  GEDS -‐ Every major ‘big box’ retailer represented

Grocery Industry

¨  Grocery industry rapidly evolving ader decades of emphasis on suburban-‐site business model: ¤ Price/value/quality/organic market segmenta=on ¤ Store loyal=es diminished by more compe==on, varied offerings, store hours

¤ Consumer op=ons now include: drug stores, gas/convenience store combina=ons, Wal*Mart, warehouse club stores like Costco and BJ’s & specialty grocers like Trader Joe’s

¤ Ethnic popula=ons increase food service alterna=ves

Grocery Industry: 2012 Sales

Grocery'Chain'Store'Rankings'and'Characteristics'

2012$Rank Company

Number$of$Super4$markets

Estimated$2012$ACV$Sales

Total$SF$of$Selling$Area$

Est.$Avg$2012$Chain$Sales$per$SF$Selling$Area

Top$Columbia$Area$Brands$in$Chain

1 Wal*Mart 3,217........ 118,725,880,000$. 195,489,000.. 607.33$..... Walmart.Supercenter..

2 Kroger 2,340........ 61,128,860,000$... 103,966,000.. 587.97$.....Kroger.Stores.......................Harris.Teeter.(soon)

3 Safeway. 1,450........ 35,504,560,000$... 55,554,000..... 639.10$.....Bought.by.Cerberus/Albertson's

5 Ahold.USA 756........... 26,162,500,000$... 31,910,000..... 819.88$..... Giant.Foods.Landover

7 Delhaize.America 1,546........ 18,624,840,000$... 45,931,000..... 405.50$..... Food.Lion.....................

9 Lone.Star.Foods 690........... 10,449,920,000$... 46,515,000..... 224.66$..... BiYLo.(Example,.not.in.market)

11 Whole.Foods 306........... 8,787,220,000$...... 7,073,000....... 1,242.36$.. Whole.Foods

12 Trader.Joe's 362........... 7,563,400,000$...... 3,716,000....... 2,035.36$.. Trader.Joe's

14 Target 252........... 6,795,100,000$...... 15,224,000..... 446.34$..... SuperTarget.Center

17 Wegman's 80............. 5,055,700,000$...... 6,667,000....... 758.32$..... Wegman's

19 HarrisYTeeter 206........... 4,501,900,000$...... 7,656,000....... 588.02$..... Acquired.by.Kroger

22 Albertson's 206........... 4,310,800,000$...... 10,378,000..... 415.38$..... Acquired.Safeway

Source: Retail Grocers Associa=on

Grocery Industry: Mergers & Acquisi;ons

¨ Why are grocery chains merging/acquiring? ¤ Wal*Mart’s market share and rate of growth (top 4 had 19% of US market in 1980; now over 42% and growing)

¤ Middle/mass-‐market chain grocers stores squeezed by warehouse club discounters and specialty food stores

¤ Average profit margins for mid-‐market grocers = 0.5 to 1.25% (2013 industry avg. = 0.7%)

¤ Whole Foods 2013 reported profit margin = 3.73%

Village Center Compe;;ve Context

¨  Giant has largest market share (30%) of supermarkets in Howard County: ¤  $276 million total annual sales (2013) in 7 stores

¨  Safeway has second-largest market share (12%) ¤  $107 million sales in 3 stores

¨  Wegmans: ¤  $83 million in its 135,000 SF store ($615 per SF)

¨  Harris Teeter: ¤  $66 million in 2 stores

Grocery Industry: Howard County Market Share by Operator

Wegmans Concept

¨  More choices than other supermarket chains: +/-70,000 products vs. 40,000 in most supermarkets

¨  European open-air market concept ¨  Stores average between 80,000 - 140,000 SF ¨  Offers “stores within a store”

¤ Market cafés with seating for 100 - 500 ¤ Restaurant quality entrees, sushi, coffee shop,

fresh food bar, seafood & Asian bar, pizza/ wings

Trade Area Differences Among Grocery Stores & Des;na;on Retail

Wholesale Club Trade Areas •  Costco: 5-‐7 miles •  BJ’s: 5-‐10 miles

Office Industry

¨  Key demand indicator for office buildings: job growth in office-‐using sectors

¨  Typical occupancy factor: 200-‐250 SF per employee ¤ Declining due to “hoteling”, open floor plans, etc. to reduce tenant occupancy costs

q Over-‐building during 2003—2007 boom characteris=c of suburban loca=ons

q  Recovery from 2007—2009 recession ongoing: =ghtened capital, pre-‐leasing requirements

Office Industry: Village Center Compe;;ve Context ¨  Village Centers support small, local consumer & professional services oriented toward residents

¨  Significant scale differences: ¤  Howard County: 17.7 million SF ¤  Columbia: 14.3 million SF (81% of County) ¤  Downtown Columbia: 1.7 million SF (+ 4.3 million SF approved ) ¤  Village Centers: 129,535 SF (0.7% of County)

¨  Village Center office rents (reported as $10-‐15 per SF) do not support costs of new construc=on

¨  Economic drivers that support all office uses: ¤  Hospital: medical office ¤  University: R&D ¤  NSA supports contractors (according to local brokers), primarily in the

GE/Dobbin Road/Snowden River Parkway corridors

Lodging/Hospitality Industry

¨  Average suburban hotel site: 2.5-‐4 acres ¨  Feasibility factors: Average Daily Rates (ADR’s); average annual occupancy levels; Revenue Per Available Room (RevPAR)

¨  65% average annual occupancy: threshold for new construc=on/addi=onal rooms

¨  Major hotel brands (“Flags”) increasingly only operate, do not own the proper=es

¨  Criteria for financing now depend on both who ‘owns’ and who ‘operates’

Hotels in Columbia Lodging/Hotels-‐ Columbia Area MarketNo. Name Year Opened No. of Rooms Parent Co.

1 Springhill Suites Columbia 2009 117 Marriott Corporation2 Homewood Suites Columbia 2003 150 Hilton Worldwide3 Hilton Garden Inn 2003 98 Hilton Worldwide4 Sonesta Extended StaySuites Columbia 1999 118 Sonesta Hotels & Resorts5 Extended Stay America Columbia Corporate Park 1999 136 Extended Stay America6 Marriott Residence Inn Columbia 1998 107 Marriott Corporation7 Extended Stay America Columbia Corporate Parkway 1997 104 Extended Stay America8 Extended Stay America Columbia Gateway Drive 1997 95 Extended Stay America9 EconoLodge Elkridge 1988 40 Choice Hotels10 Courtyard by Marriott Columbia 1991 152 Marriott Corporation11 DoubleTree 1982 152 Hilton Worldwide12 Sheraton Hotel Columbia Town Center 1972 290 Starwood Hotels

Total Rooms (STR Global report) 1,559 13 Hampton Inn Columbia 2001 83 Hilton Worldwide14 Holiday Inn Express Columbia/Elkridge 2009 98 InterContinental Hotels Group15 Hampton Inn & Suites Columbia 2012 124 Hilton Worldwide

TOTAL ROOMS 1,864 Source: STR Global; WTL+a; RDS

Lodging Industry: Village Center Compe;;ve Context ¨  Annual room occupancy swings between 2007 & 2013 ¨  Occupancies declined to 64.7% (2009), peaked at 72.4% (2011); declined again to 65.7% (2013)

¨  Other performance metrics: declines in average daily rates, revenue/available room

¨  Sustained, stable performance required over next several years

¨  Other key factors driving demand: ¤  Con=nued job growth ¤  Expansion of office market ¤  Availability of developable parcels that meet industry requirements

Residen;al Industry: Village Center Compe;;ve Context

¨  Key economic drivers: popula=on/HH growth, mortgage interest rates, job growth

¨  Success of new residen=al in Wilde Lake: key market indicator of demand for new MF residen=al in other Village Centers

¨  Market opportuni=es in Village Centers should recognize new housing in Downtown Columbia

¨  Limited available land area in Village Centers may require ‘ver=cal’ developments if number of housing units is increased

Residen;al Industry: Village Center Compe;;ve Context

¨  Stable, viable housing market q  Villages are basically built out q  Future new housing: scaeered, in-‐fill and redevelopment q 5,500 units in Downtown Columbia q 236 units in Wilde Lake

Columbia Market Context

Columbia Market Study Area

Village Centers: ¤  Long Reach ¤ Oakland Mills ¤ Owen Brown ¤ Dorsey’s Search ¤ River Hill ¤ King’s Contrivance ¤ Harper’s Choice ¤ Hickory Ridge

¤ GE Site and Dobbin Road/Snowden River Parkway Corridors (GEDS)

¤  Study does not include Downtown Columbia/Town Center or Wilde Lake

What is GEDS? Abbrevia=on for the GE site and the Dobbin Road/Snowden River Parkway commercial corridors

Columbia Retail Market Context

Retail'Comparison:'Village'Centers'and'GEDs

VillageTotal*Retail*

SFVacant&

Retail&SF %&Vacant

Long&Reach& 92,021&&&&&&&& 60,129&&&&&&&& 65.3%

Owen&Brown 106,437&&&&& 5,855&&&&&&&&&& 5.5%

Oakland&Mills 71,209&&&&&&&& 5,216&&&&&&&&&& 7.3%

River&Hill& 191,402&&&&& H&&&&&&&&&&&&&& 0.0%

Hickory&Ridge 87,678&&&&&&&& 832&&&&&&&&&&&&& 0.9%

Dorsey's&Search 83,252&&&&&&&& H&&&&&&&&&&&&&& 0.0%

King's&Contrivance 120,053&&&&& 2,570&&&&&&&&&& 2.1%

Harper's&Choice 112,016&&&&& 8,576&&&&&&&&&& 7.7%

Total&Village&Centers 864,068&&&&& 83,178&&&&&&&&

GEDs 1,535,517&& 35,344&&&&&&&& 2.3%

Source:**CoStar,*Nov*15,*2013;*WTL+a

Columbia Office & Industrial/Flex

Office&&&Industrial/Flex&Comparison:&Village&Centers&and&GEDs

VillageTotal*Office*

SFVacant&

Office&SF %&Vacant

Industrial/&&&

Flex

Vacant&

Industrial/&&&&

Flex %&Vacant

Long&Reach& 20,103&&&&&&& 3,554&&&&&&& 17.7%

Owen&Brown 19,898&&&&&&& H&&&&&&&&&&& 0.0%

Oakland&Mills 24,548&&&&&&& 3,250&&&&&&& 13.2%

River&Hill& 24,214&&&&&&& H&&&&&&&&&&& 0.0%

Hickory&Ridge H&&&&&&&&&&&&& H&&&&&&&&&&& 0.0%

Dorsey's&Search 20,000&&&&&&& H&&&&&&&&&&& 0.0%

King's&Contrivance 20,772&&&&&&& 0.0%

Harper's&Choice H&&&&&&&&&&&&& H&&&&&&&&&&& 0.0%

Total&Village&Centers 129,535&&&& 6,804&&&&&&&

GEDs 2,866,476& 253,948&& 8.9% 4,273,868& 664,558 15.5%

Source:**CoStar,*Nov*15,*2013;*WTL+a

Village Center Market Observa;ons

Grocery & Other Retail ¨  ‘Grocery anchor’ model is somewhat outdated; consider alterna=ve des=na=on uses as anchors

¨  Compe==ve context for supermarkets east of Route 29 increasingly challenging: ¤ Considerable trade area overlap ¤ Mul=ple new/alterna=ve offerings (Wal*Mart, Costco, BJ’s, Trader Joe’s, Target, Wegmans, Whole Foods Market)

¤ Consumer ‘brand loyalty’ evolved toward choices/value


Grocery & Other Retail ¨  Scale of Village Centers, differences in visibility to larger markets affects ability to aeract specialty retail

¨  Current Village Center layouts not conducive to add new uses

¨  Planned concentra=on of specialty retail in Downtown Columbia will dominate this category

¨  Retail strategies ‘re-‐thought’ every 10 years; retail cycle becoming shorter

¨  Consumer services, food & beverage more likely in near term in Village Centers


Grocery & Other Retail (Con;nued) ¨ Poten=al impacts to Village Centers of Downtown Columbia development: ¤ 5,500 housing units ¤ 1.25M SF retail ¤ 4.3M SF office uses

¨ Rela=vely high HH income levels & densi=es remain desirable for certain Community Retail Center tenants (e.g. food service/restaurants)


Office Market ¨  Only 129,535 SF of “garden” office uses; nominal 0.9% share of Columbia’s 14.4M SF office market

¨  Limited absorp=on/leasing ac=vity ¨  Current rents insufficient to jus=fy new construc=on (except River Hill)


Lodging/Hospitality ¨  1,864 hotel rooms in Columbia; 56% share of Howard County’s supply (3,335 rooms)

¨  Current hotel occupancies: 67.9% ¨  Village Centers unlikely to aeract lodging/hotels ¨  Most Village Centers have limited visibility to major highways, limits ‘flagged’ hotel poten=als

¨  Unless adjacent to major roads, hotels require other economic drivers to generate roomnight demand; ¤  examples: office cluster, hospital, college/university, etc.

GEDS Observa;ons

¨  Currently a mix of uses including industrial/flex space, office, retail (ranging from chain and locally owned food service to MANY nail salons)

¨  Commercial corridor poten=als are different in both scale and market support than Village Centers

¨  Every major ‘big box’ retailer represented ¨  Future development =ming affected by long-‐range land-‐use considera=ons, and connec=vity/traffic

GEDS Market Observa;ons

¨  Evolving land uses: Light industrial/flex to retail, light industrial to office, etc.

¨  Office market reportedly responding to nearby demand generators (Fort Meade, NSA) with industrial space conversions to affordable ‘lod’ type office space

¨  Limited office ameni?es available without a car ¨  Lower rents, more limited investment incen=ves under current densi=es and configura=ons

¨  Key policy ques?on: industrial vs. office/retail/hotel/ commercial mixed-‐use; opportunity for more residen=al?

Next Steps for the Study

¨  Market analysis completed to determine supportable programs for the eight Village Centers and GEDS – April 23

¨  Recommenda=ons and strategies responding to market analysis and industry trends – May 29

Ques;ons & Discussion

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