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How to Succeed in the 'Burbs

Philadelphia Dining DC

How do you set bricks and mortar apart from online retail? (Natural light and human interaction? Terrifying!) Panelists at our recent Philadelphia Retail Summit looked towards the suburbs' hot tenants and big boxes for inspiration.

For Kimco Realty Mid-Atlantic prez Tom Simmons, it's the vibe of the customer shopping experience. In some cases, the box stores are embracing online: Although electronics retailers keep losing out to the Internet, some grocery chains like Giant-Carlisle are utilizing it for online ordering and in-store pick up. (It limits the amount of time you have to try to straighten the one wobbly wheel on your cart.) Among the other rightsizing trends Tom is watching for is the rise of banking kiosks to replace full-service branches. In food, the buzzword is “fresh," as in farm-to-table concepts like Earth Fare, which can succeed in niche markets.

At the same time, mid-market groceries are struggling while high-end and discount chains bring the pressure, notes Federal Realty Investment Trust Northeast regional COO John Hendrickson. For those big box spaces, new uses are coming into play, such as showrooms for fashion retailers and fitting in overnight shipping centers. John says the hot tenant of 2013 was literally frozen—as in yogurt—and in 2014 it's the fitness center that will continue the hot streak. (We spent all of 2013 eating fro-yo, and now we need to spend all of 2014 in the gym.)

Brixmor Realty SVP David Vender says that health and wellness leases have been reliable for him too, and medical practices are now used to competing with traditional retail tenants. David also cites space modification as a growing practice, sometimes to drastic effect—think Staples, which is shrinking its store footprint by 40%. (The ol' No. 2 pencil is going the way of the Dodo bird and standalone calculators.) A good sign is that rent spreads are strong: He’s finding $40-60/SF in the 'burbs. The key to suburban expansion is having a good relationship with municipalities desiring to grow their tax base. But John says it will take a change in attitude to get neighbors on board with transit-oriented development, especially on the Main Line where there’s been resistance.

From an out-of-towner's perspective, Greater Philly's fluent demographics and barriers to entry make it attractive for expansion, says JBGR Retail SVP Tom Sebastian—hence, the DC company's development of the King of Prussia Town Center, a 230k SF lifestyle shopping center that's part of a mixed-use development and the first major project of its kind in KOP. When the low-hanging fruit is already plucked, creativity pays off. In DC, JBGR proved that by developing the first mixed-use Walmart project in the world, which has four floors of apartments above the store.

CBRE-Fameco EVP David Orkin sees big boxes turning into restaurant courts and entertainment projects. He points to the Moorestown Mall as an example of bringing in the chef-driven restaurant concept once considered the sole domain of Center City. (There's two things the Internet can't change—we need to eat and we hate to cook.) While not credit deals, these retailers are making an effort to differentiate themselves, although there’s never a set formula for what works. In the case of Starr Restaurants, it can be a matter of trying a dozen different concepts and then going on the road with what's proven to work, David says.

Special thanks to sponsor Energy Management Systems, whose CEO Gregg Voltz was in attendance. EMS provides comprehensive energy solutions for commercial properties, including efficiency lighting upgrades, meter reading and installations, and purchasing deregulated energy and gas. Gregg says the truly "smart" meter has arrived as EMS allows for WiFi to remotely program a thermostat from tablets and smartphones.