Memo East CBD Redevelopmentt ~ li
Planning & Economic
Development
MElVYORANDUM
TO: Honorable Mayor Maxwell and Hopkins City Council Members
FROM: Kersten Elverum, Hous ordinator
DATE: February 25, 2002
SUBJECT: East CBD Redevelopment Project -Retail Market Study
The results of the retail market study for the East Central Business District (CBD) redevelopment
project, also known as Marketplace Lofts, will be presented at the March 6, 2002, Council
worksession. Dick Paik, Bonz/REA, Inc. will be at the meeting to present the study and answer
any questions regarding the market analysis.
Attached is a copy of the study for your review.
•
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TABLE OF CONTENTS
I. INTRODUCTIONANDSDMMARY .....................................................2
SUMMARY OF KEY FINDINGS ................................................................................. 2
DEFINITIONS OF KEY TERMS .................................................................................. 4
ORGANIZATION OF DOCUMENT ............................................................................ 5
II. CURRENT CONDITIONS ..................................................................... 6
A. HOPKINS : GENERAL PROFILE ........................................................................ 6
B. MAINSTREET MARKET CONDITIONS ............................................................ 8
C. COMPETITIVE ENVIRONMENT ...................................................................... 11
III. MARKET POTENTIAL ........................................................................14
A. GROWTH PROJECTIONS .................................................................................. 14
B. TRADE AREA EXPANSION .............................................................................. 14
C. POTENTIAL NICHES ......................................................................................... 15
IV. PROSPECTIVE TENANTS AND ACHIEVABLE LEASES ............. 20
A. BUSINESS PROFILES ........................................................................................ 20
B. LEASE RATES .................................................................................................... 21
APPENDIX A: MEDIAN OPERATING CHARACTERISTICS FOR
SELECTED RETAIL STORE TYPES ....................................................... 23
APPENDIX B: HOPKINS RETAIL SALES, 1992-98 .............................. 24
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The Cornerstone Group
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I. INTRODUCTION AND SUMMARY
This document presents a market feasibility analysis for the retail component of the
proposed Market Place Lofts project ("the Project") in Hopkins, Minnesota. Located in
downtown Hopkins on Mainstreet between Seventh and Eighth Avenues, the Project's
retail component would feature 15,000 square feet, served by approximately 60 surface
parking spaces, on the ground floor of a midrise residential condominium building
containing 42 market-rate residential condominium units (in its initial phase).
SUMMARY OF KEY FINDINGS
The essential finding of this analysis is that various market niches offer opportunities for
prospective retail tenants, with achievable net lease rates ranging from roughly $12 to
$14 per square foot. The following summarizes the basic points in support of this
finding:
Market Limitations:
• The trade area for downtown Hopkins does not offer substantial demographic
growth potential. Accordingly, retailers seeking to establish locations in growing
markets will not target Hopkins locations.
• Retailers seeking maximum visibility will select locations at regional malls and
other centers that can offer direct access to major highways and proximity to
anchor tenants.
Potential Niches:
• Hopkins' downtown businesses generally cater to established mainstream niches,
but do not target the high-end consumers living in the communities surrounding
Hopkins. While major shopping centers and other downtown districts (in
Excelsior, Edina, Uptown Minneapolis, etc.) will offer formidable competition,
such consumers nonetheless present a potential opportunity for prospective
Mainstreet retailers.
• The experience of Mainstreet's auto dealers and its recently emerging cluster of
antiques dealers indicate that downtown Hopkins maybe able to attract shoppers
from an expanded trade area (currently defined as the area including Hopkins, the
western parts of Edina and St. Louis Park, eastern Minnetonka, and portions of
Golden Valley and Eden Prairie).
Potentially competitive retail locations include regional malls, community
shopping centers, auto-oriented "strip" centers, and other downtown districts. In
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February S, 2002
general, most prospective tenants that might seek space in Project would consider
other downtown districts and other relatively low-rent spaces in the strip centers
and nearby community retail centers in Hopkins and St. Louis Park.
• Potential retail niches for downtown Hopkins include businesses providing the
following types of goods and services:
- Eating and drinking establishments featuring a diverse range of themes
and cuisines (e.g., Asian, European, barbecue, Cajun, etc.);
- Bakeries and candy/confections stores;
- Cookware/kitchenware;
- Interior furnishings;
- Toys/hobbies;
- Arts/craft-related services and supplies (supplies, frames, galleries, and
"workshop" stores (wherein customers participate in their own production
of pottery, beer, etc.);
- Sporting goods;
- Books, music;
- Luggage;
- Jewelry;
- Apparel;
- Antiques and collectibles;
- Fitness centers; and
- Service-oriented business engaged in optometry, financial services,
insurance, etc.
Tenant Ownership and Prospective Lease Rates:
• Prospective tenants would comprise a mix of independent businesses, locally-
based chains, and some lower-profile national chains (e.g., service providers,
delivery services, limited service restaurants).
Many independent retailers will not be able to generate revenues sufficient to
carry the lease payments that would be required to justify the Project's capital
costs. On the other hand, established retailers that expect to generate high
revenues will in many cases prefer alternative locations, either in conventional
shopping centers or in other downtown settings (e.g., Excelsior, Edina's 50th
Street/France Avenue district, Uptown Minneapolis). Chain retailers offer greater
security as tenants that can more reliably support lease payments, but most "high-
profile" national chains (e.g., full-service restaurants, clothing stores, etc.) will
prefer locations in various conventional types of shopping centers.
• Prevailing net lease rates in downtown Hopkins range from roughly $7 to $12 per
square foot, with some spaces leasing as high as $14. In general, buildings
located close to the intersection of 11th and Mainstreet occupy the higher end of
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this range; buildings more than two blocks from this intersection command
progressively lower rents. Other comparable net leases in other downtown
districts range from roughly $10 to $16 per square foot in downtown districts such
as Excelsior, Anoka, and White Bear Lake.
• Given appropriately configured spaces, the Project will likely be able to attract
tenants at net lease rates ranging from $12 to $14 per square foot. Where the
Project seeks credit-worthy tenants at rates in excess of these levels, however, it
will face significant challenges and risks. While the Project should be able to
attract tenants in the above-listed niches, its tenant mix may also include some
tenants that may (1) come from other locations in Hopkins; (2) offer goods and
services currently provided at other Hopkins-based businesses; and/or (3) seek
affordable space for low-revenue businesses.
DEFINITIONS OF KEY TERMS
The following terms and phrases shall carry the meanings as set forth below:
"Net lease" shall refer to the lease rate, exclusive of insurance, taxes, utilities and
maintenance charges, that are retained by the property owner/lessor.
"Gross lease" or "dross-equivalent lease" shall refer to the costs for occupying rental real
estate. Such costs include the "net lease" as well as costs for insurance, utilities, taxes,
and maintenance.
"Regional Mall" or "Regional Shopper Center", shall refer to shopping centers that offer
a variety of general merchandise, apparel, furniture, and home furnishings stores,
typically including two or more full-line department stores and a total of at least 500,000
square feet of gross leasable area.
"N ighborhood Shoppin Center" shall refer to a retail center offering goods (food,
drugs, etc.) and services (laundry, hair care, repairs) for the day-to-day living needs of a
local neighborhood. The neighborhood shopping center typically contains a grocery
store, typically containing 40,000 to 60,000 square feet, with a total of up to 100,000
square feet of gross leasable area. The "Community Shopping Center" provides a wider
range of retail lines (apparel, hardware, etc.), and typically features major tenants such as
discount department stores or super drugstores. Community shopping centers range in
size from 100,000 to 500,000 square feet. Local examples of community shopping
centers include the Miracle Mile and Knollwood Shopping Centers.
"Strlp" refers to a general district, oriented along a major roadway such as Highway 7 or
Excelsior Boulevard, featuring a variety of free-standing retail properties that typically
include fast food restaurants, drugstores, as well as small "Strip Centers" that contain no
major "anchor" tenants and typically contain less than 40,000 square feet.
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"Downtown District," refers to a district characterized bypedestrian-oriented
environments with storefronts opening onto sidewalks rather than parking lots. Buildings
are usually older structures, collectively comprising a community's original downtown.
ORGANIZATION OF DOCUMENT
Following this introduction, this document begins with a basic analysis of the background
context for downtown Hopkins. This is followed in Section III with an analysis of
prevailing retail market conditions. Section IV then presents an assessment of market
potential and niche opportunities, and the report concludes with an assessment of the
Project's competitive environment, likely tenants and achievable leases.
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The Cornerstone Group
February S, 2002
II. CURRENT CONDITIONS
Before examining potential growth factors that might support new retail development, it
is first necessary to define prevailing retail business conditions in Hopkins and along
Mainstreet.
A. HOPKINS: GENERAL PROFILE
Hopkins contains a population of 17,145, as measured in the 2000 U.S. Census. This
represents an increase from a figure of 16,534 in the 1990 Census. Over the 1990s,
population increased at an annualized rate of 0.4 percent. Households experienced
similar increases, averaging an annualized growth rate of 0.3 percent while increasing
from 7,973 to 8,224.
Exhibit 1
POPULATION AND~HOUSEHOLD GROWTH
CITY OF HOPKINS: 1990-2000
Census
Population
Households
Source: U.S. Census Bureau.
1990 20001
16,534 17,145
7,973 8,224
10-Year Growth
Number Avg. Ann. %
611 0.4%
251 0.3%
Hopkins' socioeconomic profile features a lower median income than many of its
neighboring communities. While a relatively high percentage of the local population
(age 25 and older) has earned a college degree (37.4 percent), Hopkins' median
household income of $46,100 falls well below corresponding levels in Hennepin County
and the overall metropolitan area.
l This falls well below the corresponding rate of 45.3 percent in a five-mile radius around the City.
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Exhibit 2
SELECTED DEMOGRAPHIC CHARACTERISTICS
SELECTED AREAS
Median Bachelor's Exec./Mgr'I/
Household Degree or Professional
Income Higher (1990) Occupations
Hopkins $46,109 37.4% 31.0%
Hennepin County $64,821 35.6% 30.7%
Twin Cities Metro $61,478 30.2% 27.4%
Source: AGS, Inc.; Claritas, Inc.; Bonz/REA, Inc.
Hopkins' combination of high educational attainment with relatively low income levels is
consistent with its high numbers of young persons, many of whom have not reached their
peak earning years. As shown in Exhibit 3 below, Hopkins contains greater proportions
of persons in the 25 to 34 age group than its surrounding communities or the overall
metropolitan area. In Hopkins, ZS-to-34-year-olds comprise 21.3 percent of the total
population. In comparison, among neighboring communities, this age group generally
comprises 9 to 14 percent of total population; only St. Louis Park contains a comparable
representation in this age group.
Exhibit 3
A e~ Group Hopkins
0 - 14 16.6%
15-24 13.8%
25-34 21.3%
35-44 15.9%
45-54 11.7%
55-64 6.3%
65-74 5.1%
75-84 5.4%
85+ 4.0%
Total 100.0%
Source: U.S. Census Bureau.
POPULATION AGE DISTRIBUTION
HOPKINS AND SURROUNDING COMMUNITIES: 2000
(11-Co.)
St. Louis Park Edina Minnetonka Plymouth Golden Valley Metro Area
15.9% 18.8% 18.7% 22.7% 17.3% 22.1%
11.4% 8.4% 10.4% 11.8% 10.7% 13.5%
21.2% 8.8% 11.7% 13.8% 11.9% 15.6%
16.5% 14.8% 16.8% 19.2% 16.3% 17.8%
12.8% 15.9% 18.1 % 16.1 % 15.7% 13.8%
7.2% 10.6% 10.3% 8.9% 10.8% 7.6%
6.1% 10.1% 7.2% 4.8% 9.1% 4.9%
6.0% 9.3% 5.2% 2.3% 7.8% 3.4%
2.6% 3.3% 1.6% 0.5% 2.7% 1.3%
100.0% ] 00.0% 100.0% 100.0% 100.0% 100.0%
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•
The following exhibit presents a distillation of market profiling data generated by the
Claritas, Inc., a widely used source for marketing data. The exhibit presents general
information regarding the largest "consumer segments" of the Hopkins population. As
shown in the exhibit, Hopkins' largest consumer groups maintain incomes at and below
the estimated $46,000 median, and generally fall within the 25-44 age range. While the
fourth largest segment comprises an older, wealthier, and generally more upscale group,
the general preferences among the three largest groups occupy lower- to moderate
income ranges.
Exhibit 4
HOPKINS LIFESTYLE MARKET SEGMENTS
Consumer _ haracteristics General
r u % of Market Household Occupational Educational 2000 Med. Income M . A Preferences
1 24.5% Singles and Professional Some college $46,400 33.8 Diverse range
couples white collar 25-44 of preferences
2 23.6% Singles White collar Some college $35,600 32.4 Apt. renters
double income 25-44
3 13.1% Singles; Std. Mix High school; $22,800 33.0 Discounters
single parents some college 25-44
4 6.9% Married Professional College grad $67,]00 41.3 Upscale
couples; empty 35-54; 65+
nesters
B. MAINSTREET MARKET CONDITIONS
1. In General
Mainstreet provides apedestrian-oriented business district. Its core segment features
thriving independent retailers, asix-screen second-run cinema, and the Hopkins Arts
Center. Mainstreet maintains a generally high occupancy rate, informally estimated at 95
percent, with net lease rates ranging from approximately $7 to $12 per square foot, with
one source reporting net lease rates as high as $14 per square foot. In general, properties
located close to the intersection of Mainstreet and 11`~ Avenue achieve the highest lease
rates, and rates decline for buildings located progressively further from this point.
Retailers include a mix of restaurants and taverns, specialty stores, basic household goods
stores (e.g., hardware, drugs), antique shops, and service-oriented businesses such as
financial service providers, optometrists, etc.
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February S, 2002
The scarcity of similar pedestrian-oriented downtown settings in suburban Hennepin
County enables downtown Hopkins to draw visitors from surrounding communities. The
areas around 50th Street and France Avenue in Edina and downtown Excelsior offer the
only comparable settings within Hennepin County's western suburbs. While these areas
offer competitive alternatives for high-end shoppers in parts of Edina and Minnetonka,
downtown Hopkins nonetheless faces limited competition.
2. Trade Area and Customer Profiles
Based on interviews, existing reports, an understanding of competitive locations, and
other anecdotal evidence, the primary trade area supporting Mainstreet retailers is
bounded on the south and west by Highway I-494; on the east by Highway 100, and on
the north by Highway 55 from Highway 100 west to Highway 169 and by I-394 from 169
to I-494. While shoppers also come from more distant locations --particularly to the west
and southwest -this area furnishes roughly 60 to 75 percent of the support for Hopkins'
Mainstreet retailers.
In comparison with the City of Hopkins, the general consumer profile for this trade area
features higher concentrations of upper-income, upscale consumers. Most of the major
segments are characterized by college-educated persons engaged in professional
occupations. The largest group features a median income level of $90,700, with an older
age profile and generally upscale preferences. Other well-represented groups feature a
diverse range of age groups, but most maintain relatively high incomes and professional
occupations.
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The Cornerstone Group
February 5, 2002
Exhibit 5
TRADE AREA LIFESTYLE MARKET SEGMENTS
Consumer Typical Characteristics General
Groua % of Market Househ d Occupational Educational 2000 Med. Income Me . A e Preferences
1 14.4% Married Professional College grad $90,700 40.5 Upscale
couples managerial 45-54
2 13.8% Singles; Professional College grad $51,700 35.8 Upscale
couples 25-44
3 11.6% Singles; Professional Some college $46,400 33.8 Upscale
couples 25-44
4 9.7% Singles Professional Some college; $35,600 38.7
managerial High School 25-54; 65+
5 9.4% Married Professional College grad $67,100 41.3 Upscale
couples; empty 35-54; 65+
nesters
6 9.3% Matried Professional Some college; $51,400 39.G
couples managerial High School 35-64; 65+
7 9.2% Singles; Professional College grad $68,500 36.2 Upscale
matzied couples managerial 25-54
Source: Claritas PRIZM reports; Bon7/REA, Inc.
3. Davtime Population
In addition to trade area households, the daytime population comprises a significant
source of potential demand for Mainstreet retailers. In Census Tract 233 (bounded on the
east by Highway 169, on the north by Minnetonka Mills Road and Highway 7, on the
west by the City of Minnetonka border, and on the south by the Soo Line Railroad) the
daytime worker population outnumbers the local residential population by the significant
margin of 6,721 workers vs. 2,531 working age (16+) residents.
This work force is employed primarily in the retail trade, manufacturing and
business/repair service sectors, which comprise 27.3 percent, 24.5 percent, and 14.2
percent of the daytime worker population. The following presents rough life style
segment profiles for the daytime population.
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Exhibit 6
HOPKINS DAYTIME POPULATION LIFESTYL~ MARKET SEGMENTS
Consumer Ty pical Characteristics General
ro % of Market Househo Occupational Educational 2000 Med. Income Med. Aee Preferences
] ] 3.9% Married Professional College grad $68,900 34.4 Upscale
couples 25-54
2 9.7% Married Professional College grad $90,700 40.5 Upscale
couples managerial 45-54
3 6.9% Married Professional College grad $68,500 36.2 Upscale
couples managerial 25-54
4 6.7% Married Professional College grad $67,100 41.3 Upscale
couples; empty 35-54; 65+
nesters
Source: Clc~ritns PRIZM reports; Bone/REA, Inc.
As shown, the major segments among Hopkins' workers maintain high incomes, all of
which are significantly higher than the estimated median income ($46,100) for Hopkins
residents. Workers engage in primarily professional occupations, and generally fit a
high-end profile.
C. COMPETITIVE ENVIRONMENT
1. Retail Centers and Districts
Nearby retail centers include a varying mix of regional malls, community and
neighborhood shopping centers, highway-oriented retail "strips" and various suburban
"downtown" districts. Each of these types of locations appeal to different retail store
profiles. The following provide brief descriptions of the various retail locations and their
competitive positions.
Regional Malls and Power Centers: The Project lies within approximately five miles of
three regional shopping malls. These include the Southdale, Ridgedale and Eden Prairie
Center malls, all of which contain more than 1 million square feet of retail space. Each
of these play dominant roles and offer preferred locations for nationally prominent
department stores and restaurants, as well as national chains engaged in apparel,
furniture, home furnishings, and other specialty goods and services.
Community and Neighborhood Shopping Centers: Located at Highway 7 and Blake
Road, Knollwood Mall contains nearly 600,000 square feet. While informal observations
indicate that this center sustains a vacancy rate of at least 20 percent, (management would
not provide specific data) it nonetheless maintains a market position as awell-established
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shopping center with quality anchor tenants (Old Navy, Cub Foods, TJ Maxx, Kohl's,
etc.), reputable restaurants (Applebee's, Panera) and direct access to Highway 7 (which
carriers an average daily traffic count of 37,000 vehicles). Notwithstanding its high
vacancy rate, this center would offer formidable competition for large as well as small
retail tenants interested in the general market area.
A second community retail center in the nearby locale is the Miracle Mile Shopping
Center on Excelsior Boulevard in St. Louis Park, which contains 30 stores in 126,000
square feet. This center typically operates at full occupancy and sustains a low turnover
rate. Tenants include a mix of convenience retailers, specialty retailers (books, jewelry,
fabrics), and service-oriented tenants (cleaning services, education/training). Lease rates
occupy a range of roughly $15 to $18 per square foot on a net basis, with $3.83 per
square foot in expenses adding up to a combined gross-equivalent rent of nearly $22 per
square foot. These are supported by average gross sales reported at $212 per square foot
(National Research Bureau) in 2000.
Strip Centers: Various smaller strip centers along Excelsior Boulevard and Highway 7
comprise a third relevant retail market niche. These maintain high occupancies, but their
rent rates occupy a low range, from as low as $4 per square foot to $12 for higher-quality
spaces. Tenants include fast food restaurants, second-hand dealers, laundromats, auto
parts stores, drug stores, beauty/hair care establishments, repair shops, employment
agencies and tax preparers.
Other Suburban Downtown Districts: Other districts similar to downtown Hopkins may
compete with the Project for tenants. Such districts offer an alternative to typical
suburban retail formats. In the Twin Cities, a number of suburban communities contain
such districts. These include the communities of: Anoka, Chaska, Edina, Excelsior,
Robbinsdale and White Bear Lake.
Among these districts, downtown districts in Edina and Excelsior will compete for
retailers seeking access to downtown settings in Hennepin County's western suburbs.
Among these, Edina's 50th and France district enjoys an upscale reputation throughout
the Twin Cities, and therefore commands relatively high rents, with net leases generally
ranging from the low to mid $20s on aper-square-foot basis.
Downtown Excelsior enjoys advantages that include its affluent surroundings (see
Exhibit 11 in Section III.C.4 below) as well as its lakeside restaurants and tourboats,
which help make it a destination for summer visitors. Despite being located
approximately eight miles to the west of Hopkins, Excelsior will nonetheless compete for
retailers seeking downtown settings accessible to the affluent consumers of west
suburban Hennepin County.
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2. Competitive Assessment
The area's super regional and regional malls dominate the market for major department
stores as well as upscale national chains involved in categories such as apparel, home
furnishings, and various specialty retail categories (e.g., books, leather goods, etc.). The
nearby community and neighborhood retail centers will attract large-format retailers,
grocery stores, and a wide range of chain retailers. Other convenience-related stores and
low-end retailers will seek low-rent space in various strip shopping centers located along
traffic carriers such as Excelsior Boulevard, Blake Road and/or Highway 7.
The Project's competitive position will be strongest in appealing to independent retailers,
emerging locally-based chains, and some lower-volume national chains seeking a
combination of (1) access to unique, pedestrian-oriented downtown venues; (2) access to
Hennepin County's relatively affluent western suburbs; and (3) rents below the higher
levels sought in regional malls or upscale locations such as Edina's 50th Street/France
Avenue area.
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III. MARKET POTENTIAL
A. GROWTH PROJECTIONS
Prospective retailers seeking growing markets will not find downtown Hopkins attractive.
Over the next twenty years, neither Hopkins nor its neighboring communities are
projected to accommodate significant growth. This is attributable primarily to the built-
out status of these older suburban communities. As shown in Exhibit 7 below, over the
next 20 years, projections prepared by various communities show anticipated annual
growth rates ranging from negative 0.1 percent (Minnetonka and Plymouth) to 0.6
percent (St. Louis Park).
Exhibit 7
POPULATION TRENDS AND PROJECTIONS
SELECTED WESTERN SUBURBAN COMMUNITIES: 1990-2020
Census Projections
199Q 20001 2010 2020
Hopkins 16,534 17,145 17,200 l 7,800
Eden Prairie 39,311 54,901 56,500 59,500
Edina 46,070 47,425 n/a 49,000
Golden Valley 20,97] 20,281 22,778 23,040
Minnetonka 4$,370 51,301 n/a 49,815
Plymouth 50,889 65,894 n/a 64,720
St. Louis Park 43,787 44,126 47,010 49,500
Hennepin County 1,032,431 1,116,200 1,158,420 1,216,480
1 2000 census figures differ from estimates previously provided by the Metropolitan Council.
Source: Metropolitan Council; U.S. Census Bureau.
B . TRADE AREA EXPANSION
20-Year Growth Proiection
Number Avg. Ann. %
655 0.2%
4,599 0.4%
1,575 0.2%
2,759 0.6%
-1,486 -O.l %
-1,174 -0.1%
5,374 0.6%
100,280 0.4%
Some of Hopkins' downtown retailers have been able to penetrate more trade areas
extending well beyond the trade area defined above. Given the scarcity of competitive
suburban pedestrian-oriented downtown districts, these successes suggest that the
Mainstreet retailers maybe able to achieve similar penetrations of expanded trade areas.
• Auto Dealership Trade Area: interviews with the two auto dealerships located on
Mainstreet indicate that these businesses draw shoppers from broader trade areas.
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One dealer identifies a standard rade area radius of 15 miles, but states that
customers come from throughou the Twin Cities; the other dealer identified a
primary market encompassing a uburban corridor extending from Eden Prairie to
Maple Grove. Both dealerships dentified the non-business evening and weekend
hours as their peak hours.
• Emerging Antiques cluster: wit
opened in downtown Hopkins.
comprise an emerging district.
relatively large trade areas; the
trade area of at least 25 miles. ,
critical mass, it will enhance its
areas.
i the last two years, six antiques dealers have
~mbined with two preexisting dealers, these
general, such districts draw shoppers from
;t-established dealer in Hopkins identifies a
downtown continues to gain recognition and
~ility to penetrate increasingly remote market
The primary competitive antique
downtown Anoka. This district i;
Hopkins's emerging district; Ano
penetrate a trade area that extend<,
C. POTENTIAL NICHES
1. Inflow/Outflow Analysis
The following presents an analysis of the
and retail store sales. This "inflow/outflc
resident households against the retail sale
district in the Twin Cities is located in
roughly comparable in size (6-8 dealers) to
~a officials state that their antiques dealers
throughout the metropolitan area.
relationships between household retail spending
•w" analysis measures the spending potential of
s achieved in the area's stores.
In this analysis, a market "capture" equal to 100 percent indicates that the community's
retail spending is equivalent to the sales chieved at the community's retail stores.
Where the capture rate exceeds 100 perc nt, retail sales exceed spending potential,
thereby indicating that sales to nonreside is -- or inflow -exceeds the outflow, or local
resident expenditures occurring outside t e area. In other words, the community's stores
capture retail sales in excess of the dem d generated by the community's resident
population. Conversely, where net capt e falls below 100 percent, the community
suffers a net "outflow," indicating that to al residents' outside spending -the outflow --
exceeds the "inflow" from non-local sho pers.
Exhibit 8 presents an inflow/outflow anal
sales. This provides a useful benchmark,
serves as a net inflow area for more distan
Primary Trade Area, grocery stores captu~
is measuring grocery expenditures versus
;flecting the extent to which the trade area
shoppers. The exhibit shows that in the
a net inflow of 67 percent.
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n
Exhibit 8
Page 16
The Cornerstone Group
February S, 2002
GROCERY EXPENDITURES VS. GROCERY SALES ($ millions)
MAIN STREET MARKET AREAS
Census Primary
Tract 233 Trade Area
Local Spending at Food/Grocery Stores $11.6 $234.3
Sales at Food/Grocery Stores $39.0 $390.6
Market Capture 336.3% 166.7%
Source: Claritas, Inc.; AGS; Bonz/REA, Inc.
2. Eating and Drinkin
In comparison with the trade area's grocery spending inflow, net inflows for eating and
drinking establishments in the trade area are significantly lower, at 18 percent. This
indicates that many households who shop for basic household goods (e.g., groceries) in
the trade area will choose restaurant and taverns in other locations. This may indicate a
potential opportunity for additional restaurants and taverns.
Exhibit 9
EATING AND DRINKING EXPENDITURES vs. SALES ($ millions)
MAIN STREET MARKET AREAS
Census Primary
Tract 233 Trade Area
Local Spending at Eating/Drinking Establishments $7.2 $170.5
Sales at Eating/Drinking Establishments $17.0 $201.1
Market Capture 234.9% 118.0%
Source: Claritas, Inc.; AGS; Bonz/REA, Inc.
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Page 17
The Cornerstone Group
February S, 2002
A survey of existing eating and drinking establishments on Mainstreet and in Hopkins
corroborates this potential. While Mainstreet features several eating and drinking
establishments, comparable downtown districts feature a greater variety of cuisines and
themes. These include:
• Mexican
• Cajun
• Barbecue
• Brewpubs, Irish pubs
• Other Asian (Japanese, Vietnamese, Thai)
• Other European (French, German, Irish, Italian)
While some types of eating and drinking maybe regarded as more "upscale" than the
existing selection, the lifestyle segment profiles shown earlier indicate that such upscale
shoppers and diners comprise the largest components of the communities surrounding
Hopkins.
Overall, eating and drinking establishments featuring foreign or non-local regional
themes and cuisines appear to offer a potential retail opportunity for Market Place Lofts.
These will most likely be independently operated businesses, since major restaurant
chains typically seek more conventional, high-traffic locations. Such restaurants can
provide help contribute to a cluster of unique and unusual restaurants serving a slightly
higher-end market than is currently served by the existing eating and drinking businesses.
3. Other Outflow Categories: General Merchandise and Apparel
•
In contrast to the grocery and eating and drinking categories, the primary trade area
shows substantial net outflows of retail spending in categories such as general
merchandise and apparel. Net outflows in general merchandise, however, are to be
expected and probably reflect the influence of competitive regional malls (Southdale,
Eden Prairie Center as well as the Mall of America; Ridgedale lies within the trade area)
located just outside the primary trade area.
These same factors may account for the net outflows shown in the apparel category.
Still, the magnitude of the outflow is notable, and independently operated apparel shops
offering unique or "specialty" clothing items may be able to identify opportunities in a
Mainstreet setting. Exhibit 10 shows the net spending outflows for apparel items in the
Primary Trade Area as well as Census Tract 233.
-,pdWl+ididwm~tYZ,.`u, .ar.a..,.~,.a+~-~,za~:~.~urf ~F;w'~#`m~re nx t4.,< ~ .~..x~:...,-. - -- -= ~ ...r v. ,~+. _ _ •, '_ _ - _ ~ ,__ ~ _ _ - - - - - T -r s~ .~,..,.~ . , .w .,.ems..
Exhibit 10
Page 18
The Cornerstone Group
February S, 2002
APPAREL EXPENDITURE5 VS. APPAREL 5ALES ($ millions)
MAIN STREET MARKET AREAS
Census Primary
Tract 233 Trade Area
Local Spending at Apparel Stores $3.2 $113.9
Sales at Apparel Stores $1.1 $54.4
Market Capture
Source: Claritas, Inc.; AGS; Bonz/REA, Inc.
4. Other Potential Niches
34.0% 47.7%
Bonz/REA's research and analysis has focused on performances in other suburban
"downtown" districts in the suburban Twin Cities. Such districts include downtown
districts in Anoka, Chaska, Excelsior, Edina, Robbinsdale, and White Bear Lake.
In general, these districts attract independently operated retailers; a relatively small
number of chain stores include businesses such as sandwich shops and pizza shops.
Among these districts, White Bear Lake and Anoka serve markets that are comparable
(albeit smaller) in some respects to the market surrounding downtown Hopkins. As
shown in Exhibit 11 below, within five-mile radii of these districts, Hopkins's income,
household and household growth profiles are roughly comparable to those of Anoka and
White Bear Lake.
hkw`~~I t+we~~ -ar'kWL?.<. c_'n,.".`vwIss+nS2w'r_4.~..xes`idl~tr+~xsn.:PS _.?.s__ .. ~ -.v ~ -5:.. ~ ~_ ,1-~ r..-t: _ .. ... -. x a _ - _ .. ..~ . ~ '. _~SS~o"+3~'a = a{2/r~3_ ~+:-J~uli.~~Nid{x:
t
Page 19
The Cornerstone Group
February 5, 2002
Exhibit 11
COMPARATIVE DEMOGRAPHIC INDICATORS
WITHIN 5-MILE RADII OF COMPARABLE DOWNTOWN DISTRICTS
Median
Household Total Ho useholds
Income 2001 2006
Hopkins $74,209 208,829 210,134
Anoka $70,590 41,367 45,158
Chaska $58,958 15,355 17,502
Excelsior $97,719 30,662 32,718
Robbinsdale $53,799 127,325 128,468
White Bear Lake $76,016 30,327 31,586
Source: Claritas; Bonz/REA, Inc.
Field surveys of these and other districts reveal a number of retail store types that are not
present in downtown Hopkins. These store types include businesses selling goods and
services such as: sporting goods, baked goods/candy/confections, toys/hobby items, art-
related goods and services (galleries, crafts}, books, luggage, cookware/kitchenware,
jewelry, apparel stores, and fitness centers. While not all of these store types will
necessarily prove viable in downtown Hopkins, they nonetheless provide a useful list of
the types of tenants that occupy space in similar downtown settings. -
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Page 20
The Cornerstone Group
February S, 2002
IV. PROSPECTIVE TENANTS AND ACHIEVABLE LEASES
A. BUSINESS PROFILES
1. Niches
Summarizing the findings from the preceding discussion, potential tenant niches for the
Project include businesses providing the following types of goods and services:
• Eating and drinking establishments featuring a diverse range of themes and
cuisines (e.g., Asian, European, barbecue, Cajun, etc.);
• Bakeries and candy/confections stores;
• Cookware/kitchenware;
• Interior furnishings;
• Toys/hobbies;
• Arts/craft-related services and supplies (supplies, frames, galleries, and
"workshop" stores (wherein customers participate in their own production of
pottery, beer, etc.);
• Sporting goods;
• Books, music;
• Luggage;
• Jewelry;
• Apparel;
• Antiques and collectibles;
• Fitness centers; and
• Service-oriented business engaged in optometry, financial services, insurance, etc.
2. "A,~glomeration" Niches
Various types of retailers seek different locations in relation to their competitors. Some
types of retailers -typically high-volume stores -- seek to command markets in isolation
from their competitors. Others, however, derive advantages from clustering with their
competitors. These "agglomeration" sectors typically involve industries wherein
individual stores offer limited selections, while the overall industry features a wide range
of product lines. Examples of such agglomeration industries include restaurants (with its
wide range of cuisines), jewelry, home furnishings, and antiques.
Businesses in these sectors benefit from the recognition generated by concentrations of
businesses. Such concentrations give an area visibility and recognition as a destination
where customers will benefit from a wide range of selection within the general industry
category. Examples of these benefits include: concentrations of jewelry stores and shoe
stores in malls, antiques districts, art gallery districts, restaurant clusters (as exemplified
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Page 21
The Cornerstone Group
February S, 2002
through food courts in malls and by urban districts - e.g., "Little Italy," "Greektown,"
"Chinatown," etc.).
Downtown Hopkins has achieved a growing reputation as an antiques district; similar
recognition for other retail niches may help attract additional retailers - to other
Mainstreet locations as well as the Project -- in other agglomeration sectors.
3. Business Structure
For various reasons, many chain franchises prefer conventional suburban shopping center
formats to older districts. Not all franchises adhere to this general preference, but most
exceptions (that would seek space in downtown Hopkins) occupy lower-volume niches,
exemplified by mailing/delivery services, fast-food and limited service (e.g., pizza,
sandwich, coffee, bagel, ice cream) restaurants, fitness, and other such niches.
Chain retailers offer greater security as tenants that can more reliably support
comparatively high lease payments, but many of the relatively "high-profile" national
chains (e.g., full-service restaurants, clothing stores, etc.) will prefer locations in
conventional shopping centers or in more visible downtown settings such as downtown
Minneapolis, Uptown Minneapolis, or Edina's SOth Street/France Avenue district.
Despite the Project's greater marketability to independent retailers, it should be noted that
such retailers pose potential drawbacks. These involve (1) the relative difficulty of
finding such businesses; (2) such businesses' lower chances for long-term success; and
(3) inability to pay higher rents. In regard to the latter issue, many independent retailers
are unable to generate revenues sufficient to carry the lease payments that would be
required to justify the Project's capital costs. While many independent retailers have
established themselves and expect to generate high revenues, many of these may prefer
alternative locations, either in conventional shopping centers or in other downtown
settings (e.g., Excelsior, Edina, Uptown Minneapolis).
Overall, prospective Project tenants would comprise a mix of locally-based chains,
lower-profile national chains (service providers, delivery services, limited service
restaurants) and independent businesses. While the Project should be able to attract
tenants in the above-listed niches, its tenant mix is also likely to include some tenants that
may (1) come from other locations in Hopkins; (2) offer goods and services currently
provided at other Hopkins-based businesses; and/or (3) seek affordable space for low-
revenue businesses.
B. LEASE RATES
In projecting achievable lease rates for the Project, this analysis examined prevailing
lease rates along Mainstreet and conducted a brief survey of lease rates in other
comparable downtown districts.
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Page 22
The Cornerstone Group
February S, 2002
Net lease rates for Mainstreet retail space generally range from $8 to $12 per square foot,
with some leases as high as $14 per square.foot. Locations close to 11th Street occupy the
higher end of this range; locations more then two blocks to the east and west of 1 lth
generally occupy the lower end.
In comparable downtown districts such as White Bear Lake, Anoka and Excelsior,
brokers estimate that net lease rates generally range from a low of $8 to a high of $18 per
square foot for most spaces. This range encompasses a wide range of spaces; leases at
most properties occupy a slightly narrower range of approximately $8 to $14 per square
foot. This range is roughly consistent with prevailing rates in downtown Hopkins.
Overall, assuming appropriately configured retail spaces, the Project is most likely to
support net lease rates ranging from $12 to $14 per square foot. At these lease rates ,the
Project should be able to maintain high occupancy rates. Where the Project seeks lease
rates in excess of these levels, however, it will face significant challenges and risks.
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Page 23
The Cornerstone Group
February S, 2002
APPENDIX A: MEDIAN OPERATING CHARACTERISTICS FOR
SELECTED RETAIL STORE TYPES
The following table presents median operating characteristics for selected types of retail
stores. The data are taken from the Urban Land Institute's "Dollars & Cents of Shopping
Centers." Samples are nationwide, and the figures cannot be taken as applicable to
downtown Hopkins, since the specific characteristics of the individual surveyed stores are
not known. Despite this, the table is intended to provide a general comparison of the
likely lease rates that various types of retailers may be able to pay.
Sales Total
Gross Leasable Per Square Rents Occupancy
Tenant Type Area Foot net Costs
Hobby Store 2,500 n/a $8.10 $10.97
Cocktail Lounge 2,600 n/a $9.61 $14.14
Toy Store 6,145 n/a $9.69 $11.73
Books ~ 2,400 $156.48 $9.83 $11.50
Sporting Goods 3,143 n/a $10.06 $12.88
Fabric Shops 5,400 n/a $10.13 $15.20
Specialty Food 2,863 n/a $10.93 $12.17
Delicatessen 1,930 n/a $11.50
Women's Hair Salon 1,200 $132.97 $11.74 $14.11
Restaurant W/o liquor 2,500 - 3,500 $186.00 $12.00 $14.68
Bakery 1,536 n/a $12.67 $14.33
Arts and Crafts 2,480 n/a $12.68 $14.22
Cards & Gifts 2,480 $164.77 $12.92 $15.23
Optometrist 1,500 n/a $ l 2.97 $15.80
Jewelry 1,227 $370.85 $13.00 $16.40
Restaurant with Liquor 3,000 - 6,000 $228.12 $13.50 $16.84
Women's Specialty Apparel 1,300 $110.18 $13.59 $15.92
Children's Wear 1,508 $230.43 $13.69 $15.36
Sandwich Shop 1,300 $231.74 $13.82 $17.07
Eyeglasses/Optician 1,400 n/a $14.00 $16.33
Home Accessories 2,299 $187.06 $16.70 $22.36
Doughnut/Muffin Shop 1,200 n/a $18.12 $20.34
Coffee/tea 1,344 $245.90 $18.33 $23.66
Source: Dollars & Cents of Shopping Centers, Urban Land Institute
. US Neighborhood Shopping Center data.
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Page 24
The Cornerstone Group
February S, 2002
APPENDIX B: HOPKINS RETAIL SALES, 1992-98
Avg. Ann.
1992 1994 1996 1998 Change
Non-Auto Categories:
Hardware/bldg materials $58,885,914 $69,395,498 $70,830,425 $75,806,765 4.3%
Establishments 12 16 14 13
Gen. Merchandise $1,663,764 $4,581,813 $3,835,429 $5,780,633 23.1%
Establishments 4 5 4 5
Food $49,993,018 $53,267,972 $60,301,302 $64,761,369 4.4%
Establishments 18 24 23 22
Apparel $25,689,840 $32,652,285 $24,336,143 $20,252,020 -3.9%
Establishments 29 36 28 20
Furniture $38,972,272 $44,440,744 $32,348,680 $27,521,084 -5.6%
Establishments 40 47 39 35
Eating and Drinking $35,462,693 $40,634,766 $30,325,365 $33,837,233 -0.8%
Establishments 44 43 41 44
Miscellaneous $46,115,385 $73,495,750 $72,471,145 $69,137,149 7.0%
Establishments 184 185 177 156
Total Non-Auto $256,782,886 $318,468,828 $294,448,489 $297,096,253 2.5%
Auto $140,127,879 $168,588,975 $222,454,898 $243,854,714 9.7%
Source: Minnesota Dept. of Revenue.
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