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TRC Blog

July 08 , 2005

Retailers Racing to Downtown

July 8th, 2005 - 'Soft goods' stores line up for incentives in Dallas CBD Sandra Zaragoza Staff Writer Independent retailers are snapping up some key space in downtown Dallas, sparking optimism for the future of the long-suffering area and attracting the attention of national retailers. The Main Street District -- Main, Elm and Commerce Streets between Field and Harwood Streets -- has started to see the entrance of more than restaurants and nightclubs, experts say. So-called "soft goods" retailers -- galvanized by city incentives and residential projects -- are leasing up space around the district's famed anchor Neiman Marcus. Independent retailer Kül Design Studios, a design, furnishings shop and art gallery, has been open a few months in a 9,000-square-foot space in The Davis Building. Crimson in the City, a women's boutique, is finishing out a 2,611-square-foot space in the Dallas Power & Light Building. A men's fashion house, Benji's Collezione, recently sealed a lease to enter The Kirby Building. In addition, Jos. A. Bank (Nasdaq: JOSB), an upscale men's clothier, is said to be negotiating a deal on Main Street. Perhaps the biggest buzz is about hip national clothing retailer American Apparel, which is said to be scouting for downtown space. The Los Angeles-based retailer already is expected to take over a vacant space at Mockingbird Station, north of downtown. In the last seven to eight months, downtown has attracted "unique and boutique" retailers, and has largely not had to compete against other nearby retail centers for tenants, says Teri Dorazil of Dallas-based City Commercial Realty. "The interest started out with those types of retailers that are truly unique, cutting-edge, who are looking for something different," said Dorazil, explaining the appeal of downtown's historic buildings. But there has also been a recent shift in the types of retailers showing interest. "It was tough to get the national (retailers) to focus on what we have in downtown. But it's the national guys -- that is where we are seeing the new interest," she added. Hedging bets Downtown once thrived with national department stores and upscale shops like Titche-Goettinger, Sanger-Harris and Dreyfuss & Son. Those retailers vanished as malls and shopping centers lured shoppers away from downtown and an economic slump hit in the 1980s. Neiman Marcus -- at 98 years old -- has been the only solid retail fixture. Now the next generation of retailers are hedging their bets on downtown's revitalization. "Retailers that get it understand that at this point they are positioning themselves," Dorazil said, adding that downtown retailers will eventually have access to an upper-income residential population. "The retail incentive lets them secure a location now, so they will be in the best position when it is finally revitalized," Dorazil said. Up to now, financial incentives have been the greatest gravitational pull for retailers in the unproven downtown market. In 2004, the Dallas Downtown Partnership, a nonprofit set up to recruit retail to the Main Street District, was given $2.5 million from the City Center Tax Increment Financing Fund, to administer to retailers through the Main Street Retail Incentive Program. As of this week, all of the $2.5 million has been designated or awarded to retailers or developments. Basically, the program subsidized up to $18 per square foot for the first two years of a five-year lease. (Retail rental rates in the CBD average $14.05 per square foot, compared to a Metroplex average of $20.) The program also subsidized a build-out for retail spaces; the typical allowance was $20 to $38 per square foot. Retailers qualified for the program and gained funding based on a set of criteria -- among them: Hours of operation, uniqueness of merchandise, employees and whether it was a minority- or women-owned business. All five of the retailers that took advantage of the program are women- or minority-owned. "The city is working diligently to identify where additional funding could come from," according to Kourtney Penn, director of the Central Dallas Association, a membership organization created to foster downtown development. La Rue Thornton, who co-owns Kül Design Studios, admits that it was the retail program that helped her and her partner Stanley Ray make the decision to open downtown. "For the retail piece, we had expected to open in a hot area like Knox-Henderson or on McKinney," Thornton said. "When the downtown retail incentive came about, we thought why not do it in downtown? We were interested in revitalizing downtown." There is more than 300,000 square feet of retail space available in the Main Street District, according to the Dallas Downtown Partnership. Retail vacancy in the Central Business District is at 14.4% year to date, compared with the Metroplex market average of 10%, according to research by The Weitzman Group of Dallas. In comparison, Fort Worth's downtown retail space is 100% leased. On the way Other projects under way will bring additional retail space to the Main Street District. The Metropolitan, a 283-unit residential building, will offer 12,000 square feet of retail. Additionally, Spectrum Properties is planning 1407 Main -- the first new development in downtown in 40 years -- that will bring 20,000 square feet of retail space and residential. Well-known downtown developer Larry Hamilton, of Hamilton Properties, says that retail development is picking up momentum. The bulk of downtown's new leases are in his two properties: The Davis Building and the Dallas Power & Light Building. Hamilton's Mosaic, formerly the Union Tower Complex office building, will have 19,000 square feet of retail when the vacant office building is redeveloped. Meanwhile, Jack Gosnell, of Dallas-based United Commercial Realty, is listing approximately 30,000 square feet of retail and restaurant space in The Mercantile Project, which spans a block on Main and Commerce Streets. It is bordered by Ervay Street -- across from Neiman Marcus -- and St. Paul Street. Last month, city officials hammered out a deal that will give $70.5 million in TIF funds to The Mercantile's developers -- Cleveland, Ohio-based Forest City Enterprises (NYSE: FCEA and FCEB) -- resuscitating a deal that had almost expired. "We think that there is a great opportunity for fashion and retail that is compatible, and will face Neiman Marcus," Gosnell said. But downtown won't be attracting the Pottery Barns of the world anytime soon, Gosnell said. "It may take a few years before downtown sees larger chain retailers," Gosnell said. "That is an evolution that happens when retail density reaches a critical mass." Jill Tiernan, a downtown building owner and executive vice president with The Retail Connection, says even one high-profile chain retailer could propel development. She is leasing retail for 1700 Pacific in downtown Dallas. "An American Apparel (or other similar retailer) will draw other retailers. It will bring more independent retailers, and more soft goods retailers that make a great, trendy neighborhood." Downtown's residential base will continue to be a primary driver for downtown retail. Now at 1,655 people, the residential base is expected to rise to 10,466 residents by 2010. Its 130,473 daytime population is expected to grow to 138,224 workers during the same period. "Residential always fuels retail, and with the drugstore and grocery store coming in -- it's just going to make downtown that much more viable for the retail community," said David Schnitzer, with The Weitzman Group. A CVS Pharmacy opened in the West End District, and Urban Market, downtown's first grocery, recently opened in the Interurban Building. The focus is now turning to in-fill, and new retailers are adding energy, Gosnell said. "As we develop the space along Ervay Street," he said, "we'll be able to bring in neat little boutiques that will continue to get retail off and rolling."
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