A small retail center being built on the perimeter of Washington Square Mall is evidence there is still a market for new product when the stars align.

Thompson Thrift, based in Terre Haute and Carmel, has started construction on Washington Square Commons, a 9,000-square-foot retail strip at 10110 E. Washington St., at a major entrance to Washington Square Mall. The $2.1 million center, the first to be built in the Washington Square submarket in three years, is one of only a few new retail projects in the entire city.

Washington Square Commons will be anchored by The Vitamin Shoppe, which will open its fourth local outlet in 3,600 square feet, and Aspen Dental, whose 3,400-square-foot space will be its 16th Indianapolis location.

A 2,000-square-foot space remains, said Mark Perlstein, a broker for Sitehawk Retail Real Estate who represented the two tenants.

The submarket has its fair share of vacancies, Perlstein said, but the demographics are good and there hasn’t been much space available for lease that fronts East Washington Street.

“Both of these tenants will only lease in centers with high visibility and high traffic counts—and that’s what this center has,” he said.

Washington Square and Lafayette Square, its west side counterpart, often are lumped together as malls that are struggling, but the trade area around Washington Square is in much better shape, Perlstein said.

“There’s a pretty fair demand for space in that submarket,” said Perlstein, who said the demographics are very similar to what you’d find in Avon, a far west-side suburb with a reputation for growth.

The densely populated area within a three-mile radius of the Washington Square Commons site has an average household income of $59,000, higher than the city as a whole; in a one-mile radius it’s $74,000.

The last developer to take advantage of the submarket’s favorable demographics was Thomas English, whose Cherry Tree Crossing, finished in 2007, is now fully leased.

The quoted rent for the 32,000-square-foot center was $23 a square foot. English said tenants sometimes pay significantly more for just the right new space. Eyeglass World, one of the Cherry Tree Crossing tenants, pays almost $40 a square foot, he said.

The going rent for space that’s been vacated and must be backfilled is in the $10- to $12-a-foot range along Washington Street, said English. He said deals are being negotiated now for some vacant Washington Street spaces. Circuit City and Big Lots are among retailers that left big spaces to fill.

Thompson Thrift’s new development, which is being financed by Old National Bank, is on a one-acre site that housed a Denny’s restaurant until about a year ago. Thompson Thrift bought the site from Denny’s earlier this year and then leveled the restaurant to make way for construction.

Ashlee Boyd, Thompson Thrift’s senior vice president, said Washington Square Commons is one of four similarly sized projects the company is starting this month. The other three are in surrounding states. Last year the company finished two small projects in Avon.

Boyd said the recession has changed Thompson Thrift’s business plan. Up until a few years ago, the company’s goal was to build larger centers, like Cool Creek Village, an 85,000-square-foot property in Carmel anchored by an LA Fitness. With tenants and financing harder to come by, the company has shifted its focus to smaller preleased projects.

Donna Hovey, a retail broker for CB Richard Ellis, said even a small development in the current commercial real estate environment is significant. The location of the project in an area with great demographics and no new space available makes it a good opportunity for the developer, she said.

Recent road work on Washington Street that added medians and reduced the number of access points makes the site of the project—a main entrance to the mall with a traffic signal—a prime location, said Hovey.

Washington Square Commons was designed by Terre Haute-based DIG Architecture & Planning and is being built by Thompson Thrift’s construction unit. It is scheduled to open in October.