Commercial Center Summary

Despite some significant shocks to the retail sector between 1999 and 2003, the industry has recovered reasonably well in southern New England.  The regional chain store bankruptcies and replacement by dominant national retailers has more or less worked its way through the region, although Wal-Mart is now taking on the established grocery chains, having already cut a wide swath through the discounters.  Reportedly 90% of all new retail construction is for single tenant or owner use. 

As with residential markets, retail construction has been buoyed by low interest rates.  Shopping center construction spending, after falling precipitously from 2001 through mid 2002, has been rebounding and was very strong through the first five months of 2004.  However, retail construction cycles have relatively short swings, with four cycles over the past 10 years, and interest rates are now climbing.  While shopping center executives remain optimistic through the end of 2004, retail construction will doubtless curtail somewhat along with residential development as higher rates take money out of the consumer’s pocket and increase construction costs and rents. 

Real estate cycles notwithstanding, the subject location in downtown Meriden is, and should remain, a very viable for new retail development under certain conditions as outlined below.

Big Box
With such a potentially large area to work with and with such good highway access, it is not inconceivable that a big box retailer including a supercenter such as a Wal-Mart would be attracted to the subject location.  Not long ago, Wal-Mart would have nothing to do with urban locations, but that attitude is changing.  Nevertheless, a big box discount-grocery operation is considered a lower probability for the subject location than a supermarket chain or one or more small box operations. 

Supermarket chains, such as Stop & Shop, keenly sensed the threat posed by Wal-Mart as it went into the grocery business in the mid 1990’s.  As a result, supermarkets targeted urban locations in order to shore up markets like Meriden by opening a second location (Broad and East Main).  Wal-Mart and Stop & Shop (and the other major chains) are locked in a protracted struggle across New England for real estate and market share, and Meriden is certainly part of the battleground. 

The introduction of a super center of Wal-Mart proportions, about 140,000 SF on 14 acres, would quickly absorb a large section of the city center redevelopment area.  It would add a large real estate ratable and more low-wage, part-time limited-benefits retail jobs to the Meriden economic base.  Furthermore, it would have major implications for the marketability of the remainder of the site as well for any use other than retail.  Success of a supercenter or big box anchored center in this location could come at the expense of the existing grocery anchored centers in Meriden.  Competition and low prices have their place but there are costs as well if competition is not well balanced.

Small Box
With respect to new retail construction nationally, almost all of it is for single user tenants or owners.  Retail sector construction has been particularly strong in the last two years, which is expected to continue even if interest rates continue to increase.  As site development permits, a second phase of retail development could include locations for one or more 25,000 to 40,000 SF single tenant user.  Current gap analysis indicates that there is potential for home furnishings and possibly office supplies.  The market assessment will of course have to be refined at such time as a site or sites are identified and become available. 

Leaving room for smaller boxes has some advantages over planning for one larger box.  Current development and expansion cycles and competitive pressures result in retailers reexamining locations and portfolios.  As a result, these big stores can and do “go dark” with increasing frequency.  Experience has shown that the larger the box, the harder it is to refill.  There are fewer larger users and the alternative is to subdivide the space.  There are many more potential users for 25,000 to 40,000 square feet (electronics, office supplies, bookstores, gyms) should re-tenanting become necessary.

Food at Home (Grocery Sector)
Gap analysis indicates that both the immediate area and three mile radius indicate unmet demand for grocery store goods, despite the two Stop and Shops, the Shop Rite and Save-A-Lot all within three miles of the site.  A smaller format supermarket may be an appropriate response such as a Price Chopper similar as the one in Southington or an Aldi’s like the one in Wallingford. Also Big Y has been taking on new Connecticut locations.  The potential for specialty food stores is exceptional within the three-mile area.  Given the great diversity of ethnicities in Meriden, the potential for new or relocated ethnic markets and restaurants is excellent.

Restaurant Sector
An analysis of supply versus retail potential demand for restaurant sales indicates good opportunities for restaurant use at the subject location.  Within the one mile radius there is $5.6 million in restaurant spending leaving the area out of a total of $23.7 million spent.  The gap for full service restaurants is $4.5 million and for fast food outlets $1.1 million. A total of 56 food and drinks business operate in the one mile ring.

However, when we look at the three-mile radius, sales generated by 121 eating and drinking places of $101.1 million actually exceed the $92 million spent by households in the three-mile area.  This indicates that people come into the area from outside to eat and drink.  The disparity is especially wide for 15 full service restaurants, where the surplus of sales to potential demand is $28.8 million.  As the wider three mile radius area is overall something of a destination for full service restaurant, while the innermost one-mile ring shows some leakage, there is potential for locating new full service restaurants in the subject location upon redevelopment and stabilization. 

Our research suggests that not all restaurants need to or will be chain operations in this location: independent, well-established food stores, bakeries, restaurants and coffee houses could be encouraged to branch into the re-emerging downtown.  For example, Meriden might expect to see a branch of one of its regionally renowned kielbasa makers or a steamed cheeseburger purveyor located in the redeveloped downtown.  This could help build traffic from a broad market constituency seeking unique and authentic dining experiences.  Potential candidates include local entrepreneurs who have operated successfully in the area, really know and understand the local market who will move or open a new location.

Mixed or Combined Uses
As an alternative to conventional retail, mixed-use development represents a potential opportunity for the subject site but can be expected to take longer to establish.  Much has recently been written of the New Urbanism mix of land uses where residents and visitors enjoy a 24/7 environment with home, workplace and shopping/leisure all in close proximity.  Some mixed use developments have been in existence for up to 15 years and experience has shown that they can be not only successful places to live and shop, but also generate good returns to their developers, owners and retail tenants. 

One drawback to this approach is that correlated but single use development rather than truly mixed-use development including residential is easier to roll out.  Developers tend to specialize in one type of use and prefer to stick to what they know best. Moreover, lenders are just beginning to warm up to mixed-use projects as well – financing mixed use as opposed to individual use is more expensive and difficult to obtain.  Finding willing mixed-use developers and lenders to support them is more challenging for small downtown markets typical in Connecticut, even for Hartford with all the support it has from the state.  Stamford and recently Norwalk have had some success with true mixed-use new construction, based on the strong local market fundamentals for both.  Hartford is on its third try to find a developer for its new construction mixed use Front Street project and in New Haven, the Ninth Square area, begun in the mid 1990’s is a residential and restaurant success but only recently have other types of retail become established. 

Nevertheless, mixed use does offer a number of advantages for development in downtown locations that include compatibility with existing urban fabric, sensitivity to pedestrian scale and use and responsiveness to known demand.  This is particularly true with respect to the housing component of mixed–use development. 

At the subject location, we would anticipate the retail component of mixed-use development to be associated with convenience-oriented and specialty retail, with grocery and restaurants as anchors.  The retail economy has a structure (co-dependencies) that are best observed: the mix should be market driven (the right restaurant for Meriden’s tastes and income) but also needs to be “engineered” – including enough restaurants to create traffic and other mutually supporting convenience retail.