Retail boom slows but new stores still coming
Alaska has experienced a huge retail market boom in recent years as several national brands set up shop here for the first time. That growth will continue, albeit more slowly, in the next few years.
2011 marked the latest year that several brands introducing themselves to the Alaska market. National brands like Apple, Aeropostale, Teavana, Bare Escentuals and most recently Olive Garden opened their first local stores and all in Anchorage. Olive Garden has already begun moving on a second location in south Anchorage.
Before then, big names like Target, Walgreens, Bed Bath & Beyond, Kohls and others entered the state over the last several years, with 2007-2009 experiencing huge retail construction. Other stores here expanded into additional locations during that same period.
The next few years will have their fair share of retail expansion as well, including new entrants. While the numbers are good, experts say this is still a slowdown from years past.
“I think the boom years are probably gone,” said David Irwin, a Bellevue, Wash.-based developer and consultant who works with Alaska retail construction. “We’re at a good level pace. And I think that that’s we’re going to be for the next couple of years.”
Commercial sales associate Brandon Walker of Bond, Stephens and Johnson said slowing new entry into Alaska is indeed a trend right now. Some factors to this include national brands achieving their exploratory goals in Anchorage or trying other locations. Some of these even include other parts of Alaska.
Still, new entries will be here. Walker said Alaska represents a good growth market for companies that have exhausted other locations down south. This is supported by increased spending for each quarter in 2011, most notably in commercial real estate, which as up 13 percent that year.
Alaska can now look forward to Verizon, AutoZone, Buffalo Wild Wings and Sport Clips this year and next. Charley’s Grilled Subs will be expanding into the Alaska civilian retail market this year with its first non-military presence at Anchorage’s Dimond Center. The sandwich chain currently has locations at Joint Base Elmendorf-Richardson and Eielson Air Force Base.
Walker said there are several other tenants to watch out for this year, including some new retailers that could each take 20,000 to 40,000 square feet in Anchorage. Another potential fashion industry tenant could be constructing stores in Anchorage and Southcentral Alaska.
National name expansion will also be happening. Notably, Petco and OfficeMax have just opened stores in Juneau, which Irwin said is the smallest market brands like that would consider. OfficeMax spokeswoman Nicole Miller said the office supply giant does have some other stores in similar size markets.
Irwin worked on the deal for these stores’ placement in the capital city’s Nugget Mall. Irwin said a lot of brand expansions like this stem from retailers finding a good home in Anchorage, leading to the next step of branching out in the state.
“You find that they typically enter Anchorage first and then see how they do,” he said.
OfficeMax already has two locations in Anchorage and another in Fairbanks. Miller said the company recognized the demand in the Southeast area as well.
“We’re very excited about the market. We think certainly based on our services out of our Anchorage stores that the demand for our business services here will be great and certainly with the residential communities as well,” she said.
Juneau store manager Chuck Collins said the company already had existing customers in the Southeast, which helped cement the decision. He said the addition of more national brands in Juneau is a sign of the city’s maturation process as more have moved into the area.
He said the store covers about 17,000 square feet and the staff of 25 are local hires. The new location also allows use of the office retailer’s newest store design format.
Irwin said all but one of the national brands he works with already have presences in Anchorage, and most of them do well.
Pier 1 Imports is in the middle of negotiating a second Anchorage location as well as one in Fairbanks. Some brands, like Starbucks and GNC, are expanding their store numbers, which Walker said may include more Alaska locations in the next few years.
Walker feels that Alaska’s status as a growth market could also entice brands looking to build more stores, such as Big Lots, Rally’s, Sonic, Panda Express and others. Many other brands have explored here but have not committed to building.
Walker said prices and vacancies in retail properties should remain stable due to increased confidence by local users and continued national expansion, although national growth will be tempered by a need for economies of scale.
“One of the challenges with many of these tenants is basically that despite Alaska’s status as a growth market, the logistics of opening enough stores here to achieve an economy of scale can pose a hurdle,” Walker said.
He said to meet this challenge, Anchorage, which is the hub most national retails had to first, will need more retail property.
Walker surveyed about 40 percent of the 10 million square feet of retail space in Anchorage and found a 5.13 percent in Anchorage’s overall retail vacancy compared to a national retail vacancy rate of 12.9 percent.
“While sellers may be making a little bit of concession, the buyers are making much greater degrees of concession to meet the sellers,” Walker said.
He said that signs point toward good confidence in commercial real estate. Still, there are challenges. Walker said a certain degree of uncertainty is separating consumers and sellers, as property owners don’t need to settle since vacancies and interest rates are low. Meanwhile, buyers are concerned about national markets as well as Alaska’s resource development, contributing to unease for long-term commitments in entering the market here.
As such, local business confidence may have slipped after 2010, however national markets have still been exploring Alaska as a growth alternative when they’ve already exhausted many other locations.
Irwin said retailers have also been drawn to the state thanks to Alaska’s clamoring for new stores. Olive Garden is one example, as there has been local interest in the company for years.
Walker also said co-tenancy is important and that national tenants are experience lower price elasticity of demand than local tenants.
“Obviously, tenants want to be near other successful businesses,” he said. “But I think that we can see in price elasticity of demand of this more retail product that properties with the most sought after anchors and best co-tenants, they can generally name their price, whereas more of the aggressive price cuts at similar properties may generally be overlooked by national organizations.”
Irwin said it’s not uncommon for names to look here for several years before committing. Even then, it takes a long time to get a store online, especially when having to work around the weather. In places like Fairbanks, construction can often wait until the next summer.
Another Alaska construction liability is the inability to offer cheap rates, which Walker said can deter retailers like Dollar General.
“It’s a long way to go if you’re just going to put two or three stores,” Irwin said. This matters to retailers even if sales are good.
Irwin has been working with several national brand retail projects outside of Anchorage, including an AT&T building in Fairbanks, Petco and OfficeMax in Juneau and 12,000 square feet for a national retailer in Soldotna. Additional 6,000- and 10,000-square-foot retailers are on the docket in Fairbanks. He is also working on adding 8,000 to 10,000 square feet to an existing retailer in Anchorage.