Travel down Airline Highway heading toward Prairieville, and a sea of strip centers come into view. On a Monday around lunchtime, good luck finding a parking spot.
About once a week, Lindsey Spiller and David Fabre park their cars in The Crossing to meet for lunch at one of their go-to spots—either Little Village or Pimanyoli’s—both of which are in the Airline Highway strip center.
“It’s close to work for both of us,” says Fabre, an auto dealer for the across-the-street Acura of Baton Rouge. (Spiller also works as an auto wholesaler for a nearby dealership.)
The lunch crowd is particularly voluminous on weekdays. Farther down Airline, Jenny Champagne walks out of the Rouses Market in Long Farm Village, towing a boxed lunch she’s bringing back to her office, which is less than five minutes away. Meanwhile, at Ultima Plaza, Marie Brown hops into her car holding a fruity blend from Smoothie King, where she goes three to five times a week because she likes how “open” the center is.
But restaurants and grocery stores aren’t the only things drawing people to the shopping centers. On the opposite side of the busy thoroughfare, for example, Cassie Dawson enters the Planet Fitness in a nearby Albertsons-anchored Airline Highway shopping center for a workout.
“I’m getting my strength back up with a personal trainer, and this was the most convenient location for both of us,” says Dawson, who checks into the fitness center several times a week.
The stretch of Airline Highway certainly isn’t the only slice of Greater Baton Rouge with a tightly packed presence of strip centers, and the Capital Region certainly isn’t the only metro area in the country with a strong shopping center footprint.
Though considered a more mundane type of retail, as shoppers have soured on the mall experience, many stock market investors—including local investors—are instead turning their attention to strip centers and grocery-store-anchored shopping centers.
Share prices of strip-center real estate investment trusts (REITs) gained 8.6% in the past 12 months, according to national data from FactSet. It trails the S&P 500 stock index’s 29.2% return over that period, but performed significantly better than the 19.3% decline in the share price of mall landlords.
Here’s the problem with malls: Despite a strong consumer economy, physical retailers closed more than 9,000 stores in 2019—surpassing the total of 2018, which was more than the total of 2017. Among the series of closings over the past few years were Baton Rouge locations of retail giants like Banana Republic, The Gap, Paris Parker and Godiva Chocolatier. Just two months into 2020, national retailers have announced an additional 1,200 intended store closings, perpetuating what many dub “the retail apocalypse.”
Strip centers have a number of advantages over other retail. Online purchases of groceries have taken in only a limited number of cities, making the centers more internet-resistant and likely more resilient during a recession. They’re usually smaller than malls and, depending on their location, could appeal to a wider selection of tenants looking for tighter spaces and more visibility on major roads.
Judging by the quantity of shopping centers in the Baton Rouge area that are newly built, under construction or being planned for development, the local real estate community is also banking on this type of retail.
Why they’re everywhere
Over the past seven years, local developer Donnie Jarreau has acquired approximately $150 million worth of shopping centers from Lake Charles to Pensacola, some of which are grocery anchored, and some of which aren’t.
Three of those investments are in Baton Rouge. They include the 140,000-square-foot Drusilla Shopping Center (90% occupied), the 60,000-square-foot Southdowns Shopping Center (100% occupied) and the 86,000-square-foot Perkins South (98% occupied), which are among several other nearby investments Jarreau also has in Gonzales, Zachary and Donaldsonville.
“It’s competitive out there, and we’re always looking to acquire,” Jarreau says. “It’s usually better for us if we can find something off market and approach the seller ourselves.”
Mall owners hope to entice customers to spend an hour or more browsing the property, but strip center landlords say they simply want to offer stores and services that bring back local shoppers—like the Airline Highway weekday lunchtime crowd—more than once a week.
On the flip side, it’s more difficult to replace a tenant a center has lost, says Jarreau, whose firm studies an area’s average disposable income, traffic counts and historical tenants before making a purchase.
“It’s hard for us to target centers in Baton Rouge, so we usually look within a four-hour radius,” he says.
What’s more, in the era of dying malls, these kinds of neighborhood strip centers provide an ease of access for goods and services, mostly restaurants, entertainment and other concepts that can’t be replicated online.
Because of this, common strip center concepts—including fitness, medical and dentist offices, vision centers, financial services, and hair and nail salons—offer businesses and landlords a “sustainable investment that is internet resistant,” explains Carmen Austin of Saurage Rotenberg Commercial Real Estate.
“Existing centers would compete upon age of construction, price, access, visibility, and most importantly—location,” Austin says.
Fundamental to the core structure of a thriving shopping center is a reliable anchor tenant. Oftentimes, that’s a grocery store.
“Most households go to the grocery store at least twice a week, and they usually go to the one nearest to their residence,” says agent Will Chadwick of Elifin Realty, who’s marketing the final phase of Highland Park Marketplace, anchored by Alexander’s Highland Market.
“It’s competitive out there, and
we’re always looking to acquire.
It’s usually better for us if we can
find something off market and approach the seller ourselves.”
DONNIE JARREAU, commercial
real estate developer
Located at the corner of Old Perkins and Highland roads, the development is undergoing its final phase of construction, which will feature eight suites and 16,450 square feet of retail space, with a planned summer opening. Chadwick says the final phase has already attracted several tenants, including a yet-to-be-announced anchor, who were drawn to the space because of the guaranteed foot traffic that generally comes with a strong grocery store anchor like Alexander’s.
Strip centers that are “shadow-anchored,” meaning they’re either located next door to an anchor or across the street from an anchor, are doing “much better” than unanchored strip centers, says Jonathan Walker of Maestri Murrell Commercial Real Estate. Usually, food is the main attraction.
For proof, Walker points to the strong occupancy rates of the few strip centers across Corporate Boulevard from Towne Center at Cedar Lodge, one of which features a Maxwell’s Market while another includes a Lit Pizza. He compares it to the occupancy rates of several struggling Lee Drive strip centers, none of which has a steady-enough anchor to drive traffic to other small retailers, as evidenced by the closings of concepts like Piccadilly To Go, Mr. Ronnie’s Donuts and Mooyah Burgers and Fries.
Strip centers are increasingly attracting boutique fitness concepts and “pop-up” shops, as previously covered by Business Report. The developments are also hotspots for trendy concepts like bubble tea; all of the roughly 15 bubble tea shops currently open in Baton Rouge are located in a strip center.
Even retailers with big e-commerce operations are eager for a presence in such locations (as well as in enclosed, busy malls), because online deliveries are becoming more costly due to the high percentage of returns and greater demand for speedy deliveries.
Is there a catch?
While the benefits are undisputed among Baton Rouge’s real estate agents and landlords, it’s unclear how long this trend will continue.
Local strip center vacancies remain relatively low compared to still-low national rates, but they’ve risen over the years, according to the 2019 Greater Baton Rouge Association of Realtors Trends in Real Estate report.
In 2019, the vacancy rate at open-air shopping centers and strip centers reached 9.3%, up from 8.8% in 2018 and 8.1% in 2017, though it’s still lower than the national vacancy rate of 10.2%.
And, as Jarreau says, filling those vacant spaces often proves a challenge.
“You have to try to target another service-oriented retailer that’s internet-proof and can accommodate the demographics of the area,” Jarreau says.
For proof, look no further than the Acadian Village Shopping Center. Despite traditionally strong occupancy rates, the shopping center hasn’t been able to replace Provisions on Perkins, which closed in November, and faces yet another vacancy with the recent corporate-led closing of Pier 1 Imports. Meanwhile, across Acadian Thruway, Acadian-Perkins Plaza has experienced a spate of closings in recent years, though the main strip is now 100% occupied.
Even the bustling Airline Highway stretch is seeing longtime tenants move elsewhere. Mia Townsend, who owns Wall Decor and Hardware Studio, will soon vacate the Perkins Plaza suites her two businesses currently occupy in order to relocate to Highland Park Marketplace. Fellow Perkins Plaza tenant Local Lagniappe will join her, ultimately leaving a total of five units empty at the strip center down Airline.
“We’re ready for a move,” says Townsend, whose businesses have been located there for 23 years. “I have nothing bad to say about the landlord or the building; we just want a newer building because this one is getting old.”
Shopping centers are also susceptible to other factors pressuring the broader retail landscape, like escalating rental rates. Average asking rents in Baton Rouge’s open-air shopping centers and strip centers rose to $17.90 per square foot in 2019, up 17 cents from the $17.73 per square foot recorded in 2018, according to a survey of 131 local shopping centers that was included in last year’s GBRAR Trends in Real Estate report.
Moreover, the past couple of years have seen the buildouts of various centers scattered throughout Baton Rouge, including Nicholson Gateway, Arlington Marketplace, Long Farm Village, The Grove and Rouzan.
Still, those in the local real estate community remain optimistic.
“As long as there isn’t overbuilding and over saturation,” Austin says, “current supply is fitting for the demand.”