The blossoming of tertiary markets
In a Facebook post announcing that two popular national value brands would be opening stores in Circleville, Ohio — the county seat of Pickaway County with a population of 14,000 — several responders expressed their joy over the development.
“FINALLYYYYYY,” wrote one.
“Most definitely! Yesssss!!!!! I’m so excited not to have to go out of town just for a store like this!!” wrote another.
One more proclaimed, “Columbus is moving south!”
In this era of paucity of available Class A and B retail space, expanding national brands have had their eyes opened to the merits of locating in tertiary markets. The reason is made clear by reactions like these. The simple truth is that consumers in these markets will be spending more of their budgets in popular stores if they drive by them on a regular basis instead of making plans to drive 20 miles to access them two or three times a year.
Brands proceed cautiously into smaller markets
What we at CASTO are seeing are national retail brands looking into smaller markets and properties that they would not have considered in previous years. They are moving into towns based on populations, not average household incomes. Some also give higher ranks to small communities whose populations are more highly educated and have strong school systems.
They are proceeding cautiously, however. They will undertake new construction in some of these markets, but they will take the time to study tertiary markets to be absolutely sure that they are situated in the correct location.
The competition for top spaces in these towns has become fierce. And what they must have is a great traffic location with high visibility, good signage, and ample parking. Attaining the best location in town is of utmost importance to all of these brands. Those willing to undertake new construction are mostly pushing into strong, power‐anchored centers.
Small market municipalities are playing ball
Also crucial to them are municipalities that are eager to welcome them to town and can get them entitlements as soon as possible. For top-level brands, we are finding that towns move forward quite efficiently. They are eager to get the sales tax revenue flowing as quickly as possible.
We at CASTO are seeing some of these brands being willing to move into older buildings they would not have considered previously. Some national juniors are pushing hard for re-tenanting some boxes. And yes, of course, they are negotiating for the very best deals.
The vacancy rate across our portfolio is now 2%.We are in a handful of new, junior-anchor construction projects and our tenant build-out teams are very busy.
Eric Leibowitz is a partner at Columbus, Ohio-based CASTO.