The Seattle area is seeing a great deal of redevelopment of older shopping centers and the development of urban infill mixed-use properties. The tremendous growth in population and incomes in the trade areas surrounding many of these shopping centers has created pent-up demand for better quality lifestyle retailers.

“Consequently, we have seen many developers add lifestyle tenants such as Crate & Barrel, Restoration Hardware, Pottery Barn and Williams-Sonoma to their tenant mix with very positive results,” says Maria Royer, senior vice president and managing partner at Blatteis Realty Co. in Seattle.

This retail direction is evident in the 270,000-square-foot expansion of Alderwood Mall that will add two open-air wings of shops and restaurants, called The Village and The Terraces, as well as a 16-screen movie theater to the property. The project is scheduled for a fall 2004 completion.

Due to the lack of available land and the resulting high cost of real estate in the Emerald City, developers are finding much success in building high-density, mixed-use projects in established communities around the Puget Sound, says Royer. This mixed-use trend can be seen in the close-in neighborhoods of Freemont, Juanita, Lynnwood, Northgate, Queen Anne, Lake Union, Everett and Kent.

Land availability is not the only factor retail developers must deal with in these challenging economic times. In addition to the state of Washington’s $2.6 billion budget shortfall, the area’s unemployment rate was nearly a full percentage point above the national average at the beginning of the year. Retail fundamentals are soft as indicated by the 2.4 percent dip in taxable retail sales in 2002. Also, adds Royer, the state is notorious for its “business-unfriendly” regulatory approach.

“But some developers are looking beyond the current gloom,” she says. “Or, as some locals would say, they are possessed by irrational optimism and are planning major new projects that they hope will open to a brighter scene in 2 years.”

Such projects will include the unfinished Lincoln Square property in downtown Bellevue, Washington, that Kemper Freeman plans to complete. Construction was halted last summer on the $360 million mixed-use project, which is to include 330,000 square feet of retail space along with substantial hotel, luxury condominium and office space.

According to Royer, City Center Retail’s $54 million purchase in August of The Meridian entertainment and retail complex in downtown Seattle will go a long way toward re-energizing the city’s entertainment and retail core. In spring 2002, Westfield America Trust purchased the well-trafficked 1.5 million-square-foot Southcenter Mall from The Richard E. Jacobs Group. Westfield plans to nearly double the gross leasable area of Southcenter with the addition of new retail, restaurants and a large movie complex.

The last major mall to change hands in the area was the troubled 1.7 million-square-foot Lakewood Mall Shops, located not far from Southcenter Mall. MBK Northwest, which is currently redeveloping the center, bought the property in 2001 for a bargain price of $16.27 per square foot. Royer notes that smaller centers have sold in recent years for $132 to $142 per square foot.

Despite signs of retail struggles, Seattle’s retail market has fared better than other commercial real estate sectors, says Royer. While the retail vacancy rate in Bellevue decreased by more than a third last year, downtown Seattle saw its vacancy rate rise from 2.71 to 5.23 percent in the same period. Rents in both submarkets have increased though during the past year. Small company growth, positive office developments and the stabilizing presence of strong companies like Washington Mutual Bank, Microsoft, Amazon.com and the retail giants REI, Starbucks and Nordstrom will have Seattle retail looking up in the near future.

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.