Why Uptown lacks retail and how that will soon change

“Culbertson! That will never happen,” he said and then explained why. The malls have radius restrictions buried in the leases all of their key tenants – they can’t open-up stores within 10 miles of SouthPark. But malls are beginning to look at these restrictions in a new light and the result may bring some big names in retail to Uptown or SouthEnd.

A retail radius restriction is simply an agreement between a retailer who wants to be in a mall and the mall owner.  A key to understanding mall economics is to know that the mall owners gets “percentage rents” – a mechanism whereby the mall gets part of a tenant’s profits.

Owners don’t want the retailer to cannibalize their sales by opening up a location down the street, so retailers agree to “percentage rents” because they feel that they have to to be in the mall. Does this sound like restriction of trade to you? It’s not – the courts have decided that this is perfectly legal, as long as the language in the retailer’s lease is drafted carefully.

A 10 mile radius from Trade and Tryon

The good news for Uptown boosters is that these pacts between retailer and mall owners are going away. This is being forced by the boom in outlet malls and traditional mall developers wanting to move into the category with their retail clients’ outlet mall concepts in tow.

Simon Property Group, the owner of SouthPark, is now one of the most active outlet mall developers in the country. In Charlotte, Simon owns Concord Mills and recently entered into a joint venture with Tanger to develop the new Premium Outlets. In the past, the radius restrictions in the mall’s leases would have prohibited the mall owners from allowing their own tenants from going into any new development. With the popularity of outlet malls on the rise, mall owners don’t want to lose out so they are willing to let their retailers open more shops nearby.

In 2006, I was engaged to assemble land for a new outlet in Charlotte. The assignment lasted more than seven years due in large part to the changing radius restrictions for a key retailer located in a signature Charlotte mall. We started with sites in the boondocks trying to stay 15 miles from the tenant’s mall beachhead, but each year the retailer and the mall would agree to let us get a little closer and eventually we were half the distance.

Partnering with a mall owner to work around these restrictions is a possible solution for a developer who has an Uptown site. If the mall developer participates in the project where their tenants want to expand, then it is a win-win for the mall developer, the tenant and Uptown. After all, there appears to be substantial demand for Uptown retail. 

However, no matter how good a site is, the project has to get financed and the caution flag is being waived in other places than the NASCAR Hall of Fame. The pace of multifamily announcements has slowed, but the fundamentals supporting the dirt in Uptown are proven which may result in new, interesting retail announcements in the future. But for the time being, if you want to buy a pair of shoes in Uptown, you are out of luck.