Retail Construction Projects Fall in Arkansas


Even though fewer retail projects are under construction in Arkansas this year compared with last, retail developers aren’t worried. They’re busy working on retail projects for next year.

The number of retail projects that had a valuation of $4 million or more dropped from 12 in November 2014 to seven a year later. The total valuation of retail construction on Arkansas Business’ list of the largest commercial projects is $62.1 million, down 43.6 percent from the previous year.

(Get the List: Purchase the Largest Commercial Projects in Arkansas list in either PDF or spreadsheet format. The file includes 133 projects with name, value, location, contractor/construction manager and more.)

One big reason: The Outlets at Little Rock, which had a construction valuation of $35 million, came off the list because it was completed in October.

“From a national perspective, we’re in a phase of redevelopment within the industry,” said Jesse Tron, a spokesman for the International Council of Shopping Centers of New York. “We’re not seeing a ton of new development. That doesn’t mean that there isn’t any. But historically speaking, it’s very low compared to what it has been.”

Tron said developers are investing in their existing properties instead of building new centers.

“It was a lesson learned and internalized from the recession,” he said. “There was some pretty large expansion and potentially too much.”

Steve Bachman, president of Retail Construction Services Inc. of Lake Elmo, Minnesota, said he expects the level of retail construction projects to be the same nationwide in 2016 as it was in 2015. “Going out past that is anybody’s guess,” he said.

In Arkansas, the list of retail construction project is dominated by Wal-Mart Stores Inc. of Bentonville with four Neighborhood Market projects under construction in Fayetteville, Rogers, Marion and Paragould. The value of those construction projects ranges from $6 million to $7.3 million, although some are smaller — like the $3.6 million Neighborhood Market (the 700th) that opened last week in downtown Bentonville. The average size of a neighborhood market is about 40,000 SF.

The same forces that have led Wal-Mart to the smaller formats are at work industrywide. Tommy Hodges, the developer of the Gateway Town Center in southwest Little Rock, said the trend in retail development in Arkansas includes stand-alone stores and smaller stores in strip malls.

“We’re not seeing the number of big boxes that we saw in the past,” he said. “They all seem to be struggling a bit.”

Josh Brown, a principal in Haag Brown Commercial of Jonesboro, said demand has fallen off for big-box space and the rental prices have remained flat.

He said retail demand has shifted to small strip malls near quick-service restaurants such as a Five Guys Burgers & Fries or Chipotle Mexican Grill.

“It’s better than fast food, but it doesn’t take as long as dining,” Brown said. “And it has devastated people like McDonald’s, Burger King, Sonic.”

Construction of traditional indoor malls might be over too, he said.

“You might never ever see that again,” Brown said.

He said a mall tenant might be paying an extra $10-$18 per SF each year just for expenses tied to the mall, which would include taxes and common area maintenance.

“All the people renting space are looking for ways to cut expenses,” Brown said. “And that’s an easy way to cut expenses is to not pay for those things anymore.”

Tron, of ICSC, said outlet malls are now popular for developers.

“We are seeing this value-oriented consumer, but that is a big difference from what we saw in the recession, which was a price-oriented consumer,” he said. “In the recession and immediately thereafter, price won.” But now consumers want value when they make a purchase, he said.

Hodges, who developed the Outlets of Little Rock, agreed.

“I think that’s a sign of the times,” he said. “People are looking for … a little bit better bang for their buck.”

The Outlets of Little Rock opened in October and it’s doing “better than anybody anticipated,” Hodges said. Traffic “is pretty heavy during the week and very heavy on the weekend.”

Still, Hodges doesn’t foresee another outlet mall opening in Arkansas. Usually there’s only one outlet mall for an area the size of Arkansas, Hodges said. The next closest outlet center is in Branson, Missouri.

Mixed-Use Growing

One retail segment that is growing is mixed-use development, Tron said.

The top retail construction project on this year’s list is the 8W Center in Bentonville. It ranks No. 21 with a construction value of $21 million. It is being built by Dave Grundfest Co. of Little Rock.

8W is a six-story building with 80,000 leasable SF and an enclosed parking deck within the structure, said Paul Esterer, the principal and executive managing director of developer Newmark Grubb Arkansas.

The first floor will have some retail, but mainly restaurants, Esterer said. Floors 2 through 4 will be parking, and the top two floors will have office space.

The project is expected to be completed in the fall of 2016. Esterer said a Jimmy John’s Gourmet Sandwiches was going in the location, and he was in negotiations with other potential restaurant tenants.

The building is right across the street from Wal-Mart’s headquarters.

Tron noticed a “spillover effect” that retail centers have on other commercial development.

“That is the whole mentality behind a mixed-use property is that you have a built-in consumer base for the retail component,” he said.

That’s one reason Salter Properties of Conway is building a 396-unit apartment complex in Rogers — its neighbor is Pleasant Crossing, which has more than 1 million SF of shopping, dining and entertainment.

“The tenants will be able to walk and bike to the Starbucks and everything else that’s right there,” said Brent Salter, vice president of Salter Properties. “Today’s residents want to be where they can walk and bike to the commercial aspects of the city.”

The Palisades at Pleasant Crossings will feature a resort-style pool, clubhouse, fitness center and dog park. Its first phase is expected to be completed in the fourth quarter of 2016.

The property is being built by Salter Construction Inc. of Conway and has a valuation of $15.57 million.

More Projects

The first phase of the Hurricane Creek Village shopping center in Benton was completed in September, and Retail Connection LP of Dallas is working on developing phase two, which will have about 20,000 SF of space.

“It will potentially include another national retailer, what we would call a junior anchor, and then the balance would be made up of small shop space,” said David Cassman, vice president of Retail Connection.

Once he gathers enough letters of intent, the company will move forward with construction.

“At this point we’re still in the planning phase,” he said. “The building’s not even designed.” But, he said, designing the project won’t take long once the tenants are confirmed.

Phase one had about 150,000 SF and included the state’s largest Kroger, which was on last year’s list of the largest commercial construction projects with a $7 million valuation. It was built by CDI Contractors LLC of Little Rock.

Other retail developers are moving forward with projects.

Hodges said he’s going to continue to develop the 178-acre Gateway Town Center site at Interstates 30 and 430 that is already home to Bass Pro Shops.

“We’re working on some hotels and some restaurants,” he said. “And we’ve got some other things I can’t talk about.”

He declined to say what hotels or restaurants he’s talked to.

Other developers also said they have projects in the works, but they declined to offer many details.

Brown, of Haag Brown Commercial, said he is working on an 8-acre retail development project in Fort Smith.

“We’ll have a couple of restaurants and a couple of retailers as part of that project,” Brown said. He said the leases are being finalized and the names of the tenants should be released by the end of the year.

“And we’re going to try to deliver all of that space before the fall of next year,” he said.