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Entertainment retail: still growing but facing challenges

entertainment-enhanced real estate has fast become the solution to aging malls and urban centers and an attractive alternative to traditional mixed-use developments. Retail entertainment centers have mushroomed - from 7.5 million sq. ft. in 1995 to 72.8 million sq. ft. expected to open by the fourth quarter of 2000.

The key tenants of these projects include entertainment, retail, arts & culture, movie theaters, restaurants and family entertainment attractions. Lately, we have seen office and residential components added to create a new breed of entertainment centers. The key to success in these projects lies in building a unique tenant mix that makes for an 18- to 24-hour bed of economic activity. In other words, there's something for everybody all the time.

The ever-evolving marketplace is beginning to define itself. Based on our recently published "Urban/Retail Entertainment Market Research Directory," destina tion entertainment centers fall into one of four categories:

* Urban Entertainment Center: Always located in an urban core, the UEC is most often part of a public-private redevelopment effort where both the city and private developers share development costs.

* Retail Entertainment Center: The REC is generally a private development and can be located just about anywhere: suburbia, urban cores, or attached to a resort destination. This is the new mall of the new millennium.

* Lifestyle Entertainment Center: An emerging hybrid of the UEC and REC, the LEC differs in that it is typically located in smaller markets or second-tier cities and is targeted at a specific demographic, such as sports buffs or arts and culture patrons. It can be part of a Main Street development. The tenant mix usually includes smaller or local retailers with no anchor or an attraction as anchor.

* Destination Resort: The DRs are more traditional resort destinations that incorporate retail, entertainment and family attractions as part of the overall project but are not part of a gated theme park. An example would be Las Vegas casinos.

The common thread to all of these destinations is not necessarily entertainment but the creation of a unique guest experience. They become people magnets, attracting both locals and tourists. Today's consumers no longer want to get away from it all; they want to get into it all.

ECi has identified 225 projects across the United States and Canada - representing over 130 million sq. ft. - that are either operational, under construction and/or in early planning stages and due to come on line by 2002+. We expect this figure to rise by 20%.

Experts attribute the success of entertainment of destinations to many factors. The common denominator is that consumers are stressed out and have little time, yet they expect the right to escape from the stresses of daily life. Aging baby boomers as well as younger Gen-Xers view leisure time not as a privilege but as a right. Retail entertainment destinations offer a solution: a mini-vacation.

However, not all is rosy in this sector. The biggest challenge facing the industry is creating affordable and economically sound projects. At an average cost of $340 per sq. ft., these projects are capital intensive.

Attracting and finding the right mix of creditworthy retailers and entertainment tenants also is a problem. Both Disney and Warner Bros. retail stores are rethinking their retail venues, since they are no longer providing the sales needed to make them profitable.

Food is a key component to these projects; however, theme restaurants have not lived up to their expectations. There should also be caution when attracting a movie theater, as this segment of the market is close to over-screening America.

Perhaps the biggest challenge will be the effect of e-commerce. Retailers will opt for fewer retail stores as part of their expansion plans, impacting all entertainment centers around the country. So where is tomorrow's retailer?

Many alternatives are out there: arts and cultural attractions, live entertainment, innovative dining concepts, and local retailers that offer unique products and services.

With over $60 billion being invested and committed to these projects, entertainment-enhanced real estate will continue to be a major part of our industry.

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