Memphis drawing more out-of-town retailers

The Daily News
Written by: Madeline Faber

Second- and third-tier retail markets are seeing a resurgence nationally, and Memphis’ own economic recovery is garnering attention from out-of-town retailers.

Among the higher-end retailers preparing for their first local store are Ikea, which is set to open in the next few months, and Trader Joe’s and Nordstrom Rack, both of which are in their early stages and are expected to open by the end of 2017.

They speak to what Brian Whaley, a senior associate with CBRE, sees as a recent trend.

“I’d say the last two to three years there’s been an uptick in the new-to-market guys compared to even five years ago,” he said.

Trademark Property Co., the operating entity for The Shops of Saddle Creek in Germantown, said that the past two years have brought about increased out-of-town interest. Since Trademark announced the major redevelopment and expansion of the shopping center in 2014, it has brought on 18 new tenants. Twelve of those tenants, totaling 36,461 square feet, are new to the Memphis market.

The most recent tenant announcement came on Sept. 6, when Trademark reported men’s footwear and accessories manufacturer Allen Edmonds, home interiors store Southern Avenue Co., and lingerie and beauty retailer Victoria’s Secret would all open stores in Saddle Creek. Both Allen Edmonds and Southern Avenue are expected to open late this year, while Victoria’s Secret will open in early 2017.

“Oftentimes Memphis is not necessarily the first store for national best-in-class retailers,” said Terry Montesi, CEO of Fort Worth, Texas-based Trademark, which owns and operates 16 shopping centers across the country. “When they get to second-tier primary markets they’re really looking for market-dominant destination retail locations, and so part of our goal is to have as many best-in-class retailers in one place,” he said.

That means that new-to-market retailers like Allen Edmonds, Lily Rain and Southern Avenue Co. have found a home in Saddle Creek near other established stores like Anthopologie, Soft Surroundings and Apple.

Montesi said that while Victoria’s Secret and Sephora are not new to the Memphis market, their location in the Saddle Creek shopping center will be a huge draw to attract more best-in-class tenants.

Many of the new-to-market tenants are drawn to Saddle Creek because they have an existing location at another Trademark property, Montesi said. The center’s high traffic counts, recent renovation and the average Germantown income level are all positive selling points that make it a destination for best-in-class retailers.

Shawn Massey, a partner at The Shopping Center Group’s Memphis office, said that most retailers are not pioneers, so they want to locate in areas near similar tenants. He said that a stable shopping center combines national and regional chains with local tenants. While new-to-market retailers can be more difficult to secure at first, that challenge decreases once a cluster of tenants is secured.

“I think you need a mixture of both new-to-market tenants to create a unique shopping experience for a particular center or project while at the same time bringing in the best-of-market tenants in the market to bring stability and comfort,” he said.

Whaley sees Memphis’ growth in out-of-town retailers as a reflection of national trends. Many retailers are public companies who need to expand to boost stock, and Memphis’ low barrier of entry can provide that opportunity.

“Obviously these public investors are wanting the stores to open more and more locations each year, and as retail is ever changing and footprints are shrinking as ecommerce becomes bigger, it gets harder for them to open up in larger markets because there’s not a lot of vacancy and the rents are just so high compared to Memphis,” Whaley said.

Memphis’ economy has improved post-recession, but that growth has been slower compared to the rest of the nation, so local rents are still low.

According to second-quarter data from CBRE, Memphis’ retail market is seeing a 12.2 percent vacancy with average rates around $8.44 per square foot. Nearly 550,000 square feet of retail space is currently under construction.

Whaley said that Memphis’ redevelopment of its suburban centers also is contributing to an increase from outside the market. Areas like Olive Branch and the Poplar Avenue corridor are known for strong traffic counts and tight vacancies. Out-of-town investors, like real estate investment trust Seritage Growth Properties, look to redevelop these existing retail centers into more profitable and relevant offerings. To that end, Seritage has demolished the 50-year-old Sears at the corner of Poplar and Perkins and plans a 230,000-square-foot retail center to be anchored by Nordstrom Rack.

“I think an average store here could be more profitable for a retailer than a really nice store in a place where they pay astronomical rents,” Whaley said.

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