The Development Periscope

Although the retail industry is starting to rebound from the depths of the recession, the real estate development sector remains uncertain.

And yet, the Northeast has fared better than other regions across the country and is poised for growth once the economy turns around, according to Joseph Coradino, president of Pennsylvania Real Estate Investment Trust (PREIT), a Philadelphia-based company that develops retail shopping malls and power centers most specifically in the eastern United States.

PREIT’s portfolio consists of 54 retail properties, including 38 shopping malls in 13 states—from Massachusetts to Florida. Associate editor/Web editor Samantha Murphy spoke with Coradino about the state of development in the Northeast and what to expect in the next two years.

How would you describe the current retail and retail development climate in the Northeast? 

Retail development is one area that hasn’t significantly recovered yet. However, there are spotty examples of redevelopment of existing shopping centers occurring in some of the more key markets in the Northeast. We’ve seen a good deal of work on redeveloping enclosed malls to introduce outdoor shopping and dining experiences.

We’ve also seen some retailers stepping in to fill up vacant locations left behind by big boxes such as Circuit City and Linens ’n Things. However, it’s no surprise that it’s been difficult to finance ground-up development right now. Retailers are seeing an opportunity to occupy spaces with rents that are well below production costs.

How would you compare the “state of the industry” in the Northeast with other parts of the country? 

This is actually less the case in the Northeast than other areas of the country, specifically in regions such as the South and the West. The economy in the Northeast is more stable. It doesn’t have low-lows and high-highs—and unlike Arizona, Florida or Nevada, the unemployment is not as high, and there are fewer mortgage foreclosures. The region hasn’t suffered the reduction in housing value anywhere near what some of the other markets have experienced.

What kind of recovery do you anticipate in 2010 and 2011? 

There are some signs of recovery right now, but we’re still in a period of healing. 2010 is the year of regaining equilibrium with a slow return to normalcy. We are beginning to see some retail expansion, and although it hasn’t been dramatic, there are indeed some retailers that are really starting to fill some of the big-box vacancies, such as hhgregg and PetSmart. On the mall side, Forever 21, Crazy Eights and 77 Kids are seeing more growth in the junior and children’s apparel area, which is also positive.

Meanwhile, growth will be more pronounced in 2011. Unemployment will be more stable, and the housing market will finally start to recover. We hope to have a relatively strong holiday season in 2010, which will then result in retail expansion in 2011.

What has to happen for the recovery to occur? 

Consumer confidence has to be up to influence shoppers to go back into stores. In addition, people need to feel that their house is starting to increase in value again—it’s usually the single most valuable asset a family owns. If you are employed and your house is accumulating value, you will most likely shop. Once all of this is in place, retailers will begin to expand again.

What retailers, and what retail projects, do you see poised for growth and success in the next 24 months? 

The industry is poised for new concept developments. Most of the exciting new retailers in the U.S. are actually not from this country. For example, powerhouses like H&M, Uniqlo and Topshop are talking about expansion plans and acquisitions. In addition, new innovative concepts—such as the Crazy Eights and 77 Kids out there—will likely expand too. Urban Outfitters is even branching out with a new bridal concept; so did J. Crew.

Once we see a decrease in unemployment, a recovery in the housing market and boost in consumer spending, retailers will grow again and new concepts coming into the picture will also motivate expansion.