Fixer-Upper

Jul 26, 2010 12:00 PM, By MARK HAMSTRA

Lured by financial incentives, supermarket operators take a closer look at nontraditional retail spaces


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Healthy supermarket operators that are seeking to expand have no shortage of sites from which to choose.

Spencer report

In its new stores, Tops is adopting many of the elements that were designed for this planned store in Spencerport, N.Y.

The economic downturn has created a vast array of retail vacancies around the country, creating opportunities for supermarket operators willing to adopt a previously used space, whether it was used for food retailing or had been put to some other use.

Design and construction experts say that with proper planning, a little flexibility on the part of supermarket operators and some incentives from landlords who are desperate for tenants, it is possible to efficiently convert a space to a supermarket use in some cases.

Flexibility and advance planning are also key to the efficient takeover of existing supermarket sites — as has been the case with the recent conversions of vacated Penn Traffic and Shaw's locations in the Northeast.

“It's definitely easier to take a conforming space from a competitor and convert it, because there are so many things there that already work for you,” said Tim Morrison, a principal at Little Diversified Architectural Consulting, Charlotte. “Usually there is parking there already, there is circulation that works for you at the front of the building, and access to a loading dock that is already in place.

“If you take over a shoe store, for example, there is a lot more work that has to be done than if you take over an existing supermarket.”

T.R. “Ted” Benning III, president of Atlanta-based Benning Construction Co., which has been building supermarkets for 30 years, said converting a non-supermarket retail space to a supermarket operation can be almost as costly as building a brand-new store.

“The No. 1 problem — or opportunity, depending how you want to look at it — that a typical grocery store chain has going into an existing space is that it is an existing space,” he said. “Its length and width and column spacing might not fit the typical prototype of whatever that chain happens to be, so the fixture plan for that retrofit has to be designed on a custom basis for that space.”

In a typical renovation of that type, he said, the majority of the floor slab has to be redone to accommodate such fixtures as checkout stands, deli cases, coolers and freezers.

“Sometimes the only thing that can be saved is the shell,” he said. “Even the front door sometimes is not where it needs to be, and that has to be relocated.”

Despite the increased work that can be involved with conversions of non-supermarket spaces, sometimes the deals being offered now are so good that supermarkets are willing to take them anyway, experts explained.

“Sometimes they are getting these places at such a great price, it would be almost foolish not to take it,” said Jason Loucks, senior project manager at Little.

A recent report by real estate research firm Reis Inc. showed that shopping center vacancies in the second quarter were at their highest rate — 10.9% for neighborhood and community centers — since 1991, when the vacancy rate for those properties hit 11%. Asking rates at those spaces fell by 0.3%, and effective rents by 0.5%, the report said.

Those financial incentives for filling existing spaces must be weighed against the considerable costs that can be incurred in taking over existing spaces, experts explained.

“What's happening is that a lot of these spaces are so cheap, companies are willing to take a nonconforming space, and they put the burden on the architects and engineers to make it work,” said Morrison of Little. “About five years ago, everyone was much more strict about looking for space to expand where they could fit their prototype into. But now, we are asked to take nonconforming retail space and try to make it work for supermarkets.”

Among the considerable costs that can be incurred in taking over non-supermarket spaces are such items as rooftop equipment, parking lot expansion, grease interceptors, loading docks and power supplies.

“When someone takes over a nonconforming space, one of the first things they are going to look at is the structure of the building, because making improvements to the structure is one of the most costly things you have to do,” Morrison said, citing as an example the possibility that a structure might need to be upgraded to handle the weight of rooftop refrigeration units.



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