Retail market shifts focus from grocery to small shops
The retail market is alive and well in Hampton Roads, albeit a bit different than in years past.
At this year’s Real Estate Market Review & Forecast held in mid-March, industry experts shared their take on different sectors of the market. Inside Business honed in on the retail sector, speaking with several professionals to learn what they have been experiencing.
The days of legacy grocers driving development are in the past, Wick Smith, a senior vice president for Cushman & Wakefield | Thalhimer, said during the event.
Beyond rising interest rates and construction costs, the region has become
more built out with grocers saturating the market, he said. Publix is the only full-service grocer actively expanding in the region and willing to pay the rent required for new construction on a larger scale.
“Grocery development is dead, junior boxes are on life support and small shop/ single tenant is king,” Smith wrote in the report. Junior box retailers are those the size of Hobby Lobby, Ulta and PetSmart.
The way of the future is “phones, drones and automobiles,” Smith said. Online ordering, drivethru lanes and autonomous vehicles are all key to staying ahead of the current and future retail market.
In the four years since the start of the pandemic, Smith said retail underwent three major shifts in consumer behavior: e-commerce exploded, online ordering and curbside pickup became the new normal and dining habits prioritized convenience.
Now, the market is dominated by restaurants, medical users and singletenant users competing for sites. Smith said the entire retail market will need the single-tenant net lease market to work through a backlog of offerings before merchant developers open the throttle on new projects.
Meanwhile, older sites are being taken offline to be repurposed. Those include MacArthur Center, Military Circle and Pembroke mall redevelopment.
Of the commercial sectors, John Katsias, president of The Katsias Co., said he has seen the most activity and interest in retail.
“We just have such great markets of all our trade areas throughout every city that
there’s a lot of opportunities,” he said.
But, the company is seeing more demand than supply for mainly smaller strategic shop space, he said.
Katsias said there has been tremendous growth in Hampton Roads from fast-casual restaurants to smaller grocers to car washes. Retail rents per square foot have also been getting better postCOVID, he said.
Katsias is helping Atomic Wings, a New York City-based restaurant chain selling all-natural, hormonefree Buffalo wings, find properties in Hampton Roads for its upcoming expansion. His clients are from the area and saw the opportunity to bring an authentic, quality brand that could “quickly catch fire” throughout the region, he said. Atomic Wings will move into both newly constructed retail spaces and preexisting locations with outdoor patios and drive-thrus.
Jon Elliott, president of commercial real estate firm Creoteric, works with clients on both sides of the water. He said retail has held pretty strong.
Industrial — at a little over 98% occupancy — is the thinnest market and has been for a while, he said. But, retail is not too far behind with slightly over 95% occupancy.
Elliott said he handles landlord work with a few shopping centers in his portfolio, but does a lot of work on the tenant and buyer representation sides.
“Honestly, the most difficult part of my job is finding space for a lot of these tenants because many of the centers are fully occupied or close to it,” he said. “There aren’t a ton of prime available spaces.”
Elliott said the largest deal he completed recently is for a multiuse entertainment center set to occupy 45,000 square feet in Newmarket South Shopping Center in Hampton with a lease value of $6.5 million. And fitness-related businesses have been robust with a CrossFit gym, personal training, nutritional coach and a bungee fitness center all coming onto the scene in the region, he said.
He recently worked with national franchises eager to enter the Hampton Roads market, including Everbowl, an acai bowl restaurant, and KidStrong, an educational center with locations throughout the U.S. and Canada. Everbowl’s flagship location is in the Greenbrier section of Chesapeake, and Elliott said a second spot is nearly finalized in Virginia Beach.
“As soon as they get built out and operational there, they’ve already got rights for several more locations, so we’ll be looking for other spots,” he said.
KidStrong has one location in Virginia Beach and plans to open additional locations in Chesapeake, Norfolk, Suffolk and
Newport News, Elliott said.
Even local brands are expanding from South Hampton Roads to the Peninsula. Elliott said he helped Iron Asylum, a gym that started in Virginia Beach, find a space in Kempsville and another in Norfolk. He said it just inked a deal on its largest location in Newport News.
Regarding the attractiveness of Hampton Roads to retailers and its ongoing growth, Elliott said he feels the region was shielded well, compared with national trends, during the pandemic because of its military presence.
“There were definitely plenty of challenges during the COVID shutdown,” he said, “but we did not see the drastic downturn that some of the bigger markets saw.”
He said a lot of the strength now comes from the fact that the market, although weakened, was never necessarily weak.