The retail real estate market in the Raleigh outlying area offers a diverse landscape, with different types of shopping centers catering to the needs of various communities and businesses. These centers range from small neighborhood strip malls to expansive regional hubs. Understanding the nuances of each type is essential for property managers, investors, and retailers aiming to navigate this dynamic market.
Retail shopping centers come in many forms, and their configurations, size, and tenant mix play crucial roles in determining rental rates, vacancy rates, and overall market performance. In this post, we’ll explore eight types of retail shopping centers and dive into their distinct characteristics. Additionally, we'll use data from Raleigh’s outlying retail submarket to illustrate how vacancy rates, rent growth, and absorption rates vary across different retail asset classes.
Types of Retail Shopping Centers
Neighborhood Centers Neighborhood centers are designed to meet the everyday needs of nearby residents. These centers often feature one anchor tenant, typically a grocery store, and range from 30,000 to 150,000 square feet. They draw customers from within a 3-mile radius. In the Raleigh outlying area, neighborhood centers offer a stable tenant mix, primarily providing essentials like groceries, personal care, and pharmaceuticals. Rent rates in these centers hover around $26 per square foot, and vacancy rates remain modest at 4.1%. However, absorption has slightly decreased recently, reflecting minor shifts in local demand.
Community Centers Larger than neighborhood centers, community centers provide 100,000 to 300,000 square feet of retail space and typically have two or more anchor stores. These centers cater to a broader customer base, usually from a 3 to 6-mile radius. Common anchor tenants include grocery stores, pharmacies, and discount department stores. The diverse offerings allow these centers to serve as key retail destinations for outlying communities, with rent rates trending higher than smaller centers.
Regional Centers Regional centers are traditionally enclosed shopping malls, offering between 400,000 and 800,000 square feet of retail space. These properties often feature two major anchor stores and a range of specialty shops, focusing heavily on general merchandise and apparel. Regional centers in Raleigh’s outlying areas remain popular retail hubs, with rental rates around $31 per square foot. These centers attract customers from a 5 to 15-mile radius and generally have low vacancy rates, reflecting steady demand for both anchor and smaller tenant spaces.
Super Regional Centers The largest type of shopping center, super regional centers, offer over 800,000 square feet of retail space and draw customers from a 25-mile radius or more. These centers host multiple anchor stores, restaurants, and entertainment venues, making them major shopping destinations for large populations. Their size and wide range of tenants often translate to higher rents compared to other retail categories.
Fashion/Specialty Centers Fashion centers focus on high-end, luxury brands and cater to affluent consumers. These centers generally feature between 80,000 and 250,000 square feet of space and attract shoppers within a 5-15 mile radius. Their tenant mix consists of upscale retailers, offering a premium shopping experience. These centers typically command higher rent rates due to the prestige and exclusivity of their tenants.
Power Centers Power centers are dominated by large-format anchor stores such as home improvement retailers, electronics stores, and warehouse clubs. These centers range from 250,000 to 600,000 square feet, with anchor stores occupying the majority of the space. In the Raleigh outlying area, power centers have a higher vacancy rate of 4.3%, reflecting some challenges in the market. Despite this, rent growth has been strong, with rates increasing by 7.6%. This growth suggests that demand for large-format retail remains steady, even as some spaces experience turnover.
Theme/Festival Centers These centers are built around a specific theme, whether it be architectural style or tenant mix. Often located in tourist-heavy areas, theme centers include a variety of restaurants, boutique shops, and entertainment venues. While they lack traditional anchor stores, their unique draw helps maintain a steady flow of visitors. These centers tend to be popular in areas with high tourist activity and may charge premium rents for their exclusive spaces.
Outlet Centers Outlet centers cater to consumers seeking discounted products directly from manufacturers. These centers range from 50,000 to 400,000 square feet and are typically located on the outskirts of cities. Outlet centers are known for their affordability, offering name-brand merchandise at discounted prices, making them a major draw for value-conscious shoppers. Given their appeal, these centers tend to have a large trade area, often drawing customers from up to 75 miles away.
Retail Submarket Dynamics in Raleigh’s Outlying Areas
The retail submarket in Raleigh’s outlying area is experiencing steady growth, with a vacancy rate of just 2.7%—a slight decrease from the previous year. Over the past 12 months, the market has seen 290,000 square feet of positive absorption, highlighting the demand for retail space. Rent growth has been strong, with an increase of 7.2%, bringing the average rent to approximately $27 per square foot.
Different retail categories within this submarket display varying performance. For instance, general retail buildings have seen significant positive absorption, while power centers and strip malls have experienced minor negative absorption. Vacancy rates for general retail buildings are particularly low, sitting at just 1.5%, indicating strong tenant retention and demand for space.
Neighborhood centers in the Raleigh outlying area continue to play an essential role in meeting the daily needs of residents, while larger shopping centers, such as regional and super regional centers, cater to a broader customer base and offer a wider range of shopping and entertainment options.
Conclusion
Retail shopping centers in the Raleigh outlying area come in many shapes and sizes, each serving different customer bases and fulfilling various retail needs. From neighborhood centers meeting local daily needs to power centers and regional malls drawing larger crowds, the Raleigh retail market continues to evolve with growing demand. Understanding the specific characteristics and market trends of each type of shopping center is crucial for investors, property managers, and retailers aiming to thrive in this dynamic market.
October 9, 2024, Collective of authors of Loan Analytics
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