Developers: Time for retail to take a breather

Retail development in northern Nevada might be ready for a pause and the entry of Wal-Mart's new stand-alone grocery stores is just one factor.

Two California developers who've been active in large projects in the region said last week they see some signs the region is nearing a point where it's overbuilt, and retailers increasingly struggle to justify rents that top $2 a square foot.

A third developer who specializes in smaller projects such as convenience stores said, however, his clients continue to fill their maps with push pins that mark potential locations in northern Nevada.

Mike Perry of San Diego-based Wall Street Property Co.

said major new retail centers under construction in Spanish Springs as well as the development of Bayer Properties' Summit Sierra will bring a flood of new retail space into the market in coming months.

Perry's company has handled projects such as Redfield Promenade, Sparks Mercantile and D'Andrea Marketplace in northern Nevada.

Asked if the area is overbuilding, he told members of the commercial real estate group CCIM last week,"I think we're getting there." Another major developer, Jay Timon, agreed that the Spanish Springs area and south Reno may be nearing retail saturation, but he said opportunities still exist for a major shopping complex in northwest Reno.

Timon recently left AIG Baker, the Alabama company that developed a big-box project at Sparks as well as a big-box project just south of Carson City in Douglas County.

But Ron O'Mara, a Danville, Calif., developer whose clients include Quik-Stop, said convenience store operators continue to see plenty of attractive high-traffic areas in the region.

Plans by Wal-Mart to build four or five stand-alone groceries in the region may dampen plans to develop neighborhood centers anchored by grocery stores.

In fact, Perry said, he'd be wary of owning a grocery-anchored center unless the grocer had a clearly defined plan to survive Wal- Mart's onslaught on the grocery market.

His company has stopped developing grocery- anchored centers in Central California, where Wal-Mart is strongly positioned.

Resistance to Wal-Mart from some California communities, Perry said,may be bringing the giant retailer's attention to Nevada, where it faces fewer headaches winning the OK for new stores.

More trouble for retail developers comes from sharply rising costs for land and construction.

The cost of building retail space, Perry said, has tripled in some instances in the past couple of years.

But developers find they can't simply pass the higher costs to retail tenants in the form of increased rent.

"We're pushing the envelope with the tenants," said Timon."I don't know whether it's going to give.

There's some real stress there."

Higher rents, he said, were a major factor in the decision by a big-box bookseller to turn away from a proposed new store in Sparks.

And Perry said he worries that the recent spike in rents may endanger some of the retailers upon whom developers rely to keep their centers filled.

"The landlord and the tenant are partners in the success of the business," he said.