Retailers Look for Success in Secondary and Tertiary Markets

A new study from CBRE suggests that retail has been a market force familiar from others, like multifamily and medical office. They’re looking to secondary and tertiary markets to find economically friendly environments.

“Outer markets offer retailers a new customer base combined with slightly cheaper rents due to lower land costs and more available land for development than in primary, urban-adjacent markets” they wrote. “Prominent retail occupiers remain thirsty for expansion while being conscious of avoiding market oversaturation or cannibalization of existing locations.”

Pennsylvania has become a notable example. “A pioneer example of outer market growth is Lancaster, PA,” CBRE wrote. “Whole Foods and Wegmans both opened their first locations in Lancaster County in 2018, anchoring mixed-use, grocery-anchored projects, The Shoppes at Belmont and The Crossings at Conestoga Creek, respectively. These two centers opened the door for growth and have since welcomed the county’s first Nordstrom Rack, Ulta, Dick’s Sporting Goods, honeygrow and Shake Shack.”

Grocery-anchored shopping centers can do well, but then so can centers with many quick serve restaurants that can collectively bring in enough consumers. “Additionally, the continued expansion of high-credit QSR tenants like Chipotle and Starbucks throughout secondary and tertiary markets connects major markets without leaving much white space in between,” they wrote.

Not just secondary markets but tertiary ones are seeing the effect. “In Reading, PA, the former Bed Bath & Beyond at Broadcasting Square, a revamped shopping center anchored by Target and Weis Markets, was leased by Macy’s for their small format, off-mall concept,” they said. “Similarly, in Wilkes Barre, PA, Burlington Stores is preparing to open in another former Bed Bath & Beyond box which was vacant for less than 60 days before a lease was signed. On the eastern side of the Lehigh Valley, Ross Dress for Less has leased two locations while both L.L. Bean and Golf Galaxy recently opened locations in the Harrisburg market.”

There’s been a growth of investor confidence in these areas, “particularly among REITs and institutional investors.” Ten out of 30 grocery-anchored retail properties sold in Pennsylvania, New Jersey, and Delaware “were in satellite markets outside of major metro areas including Philadelphia, Pittsburgh and New York/Newark, NJ.” Expect more development in these outer areas.