The Sky Is The Limit
The value of vertical retail centers, often mixed with high-rise residential, is becoming more and more evident in growing American cities.
John Clifford, PE

Clifford

Where a power center normally rests on 50 to 100 acres, much smaller footprints are being utilized for either similarly sized or larger retail and mixed-used developments.

Limited land has always been an obstacle in major cities like New York, where it is becoming more and more crucial for developers and architects to do more with less. For example, when GreenbergFarrow designed the 640,000-square-foot Gateway Center in Brooklyn in 1999, it was built on 48 acres. A similar new development for the same client, Gateway Center at Bronx Terminal Market in the South Bronx, which just broke ground in mid-August, places more retail on even less land, with more than 1 million square feet on a parcel of less than 17 acres.

Gateway Center at Bronx Terminal Market in the South Bronx, New York, broke ground in mid-August. This project places 1 million square feet of retail on a parcel of less than 17 acres. The layout is intended to resemble that of a suburban center — stacked vertically.

Once seen only in densely populated cities like Miami, New York, Los Angeles and San Francisco, the vertical concept is spreading to cities such as Atlanta, Chicago and Dallas. With city centers once again becoming preferred living environments and as land costs increase in urban and suburban markets, the vertical retail center helps developers maximize land values.

Vertical Retail Promises Rewards, Challenges

Queens Place is a vertical center in Elmhurst, Queens, New York. One of the largest tenants, Target, is positioned on the third and fourth floors. Shoppers entering on the ground floor must walk by smaller tenants to reach an escalator strategically positioned at the back of the corridor.

More than 3 decades of retail design experience have taught us that most developers’ primary objectives are cost, leasing and return on investment (ROI). With developers and tenants having differing objectives, balancing those objectives requires constant negotiation. Architects must make design recommendations that satisfy the needs of both parties, while taking maximum advantage of possible constraints associated with the site, building codes, zoning and the investor’s ROI.

More Than Ever, Planning And Design are Critical

Thus, to create a top-quality, stimulating vertical retail center that will attract shoppers, the design team must perform a thorough due diligence and site analysis to assess the center’s logistics. Designers should also research such variables as area market trends, cultural influences, local shopping habits and entertainment practices.

The right mix of tenants creates retail synergy and a quality center attracts tenants from boutique to big box. One obstacle urban designers confront is the issue of leasing space to smaller tenants. To address their need for traffic, we have found that positioning smaller tenants in locations where shoppers will have to walk past their stores on the way to the larger tenants makes the center more attractive to the smaller tenants from a leasing perspective.

Lack of developable land in major U.S. cities has many designers turning to vertically stacked centers.

The flow of a successful vertical retail center is also important. Designers must assess how patrons park (if necessary), enter and circulate through the center. A vertical center must draw shoppers from floor to floor and create visual connections that encourage patrons to explore. Visible circulation will draw pedestrians from the street into the building, and — once they are inside — help them stay oriented. If a retail center is difficult to navigate, shoppers may not return.

Potential Pitfalls of Retail/Residential Developments

At the new center coming to Rego Park, Queens, the retail base will have major national big box retailers with residential towers above.

This type of development requires a “give.” Developers need to bend a little to accommodate a retailer’s needs into the design, even if it means veering from an already successful model.

Developers wishing to reap the full benefit of a mixed-use project must be open to the fact that the retail portion of the project will need to be redeveloped roughly every 15 years in order to stay viable. By contrast, the residential portion will be strong for decades.

A mixed-use property’s steady, stable income stems from the residential component. When millions of dollars are being invested into a project, it pays to spread the risk around. If one component does not meet expectations, the others will help it maintain profitability.

The investment community recognizes the creditworthiness of mixed-use projects and this has become another driver of the vertical development trend. These types of developments are a better lending proposition for a bank. A 500-unit condominium project along with a 75,000-square-foot retail base will be more attractive to lenders than just the stand-alone, 500-unit condo tower.

With all of the benefits of stacked projects, it is easy to understand why developers would be eager to incorporate retail components into their buildings. But a developer will not achieve stellar results by simply trying to squeeze in “throwaway” retail space — space without the proper planning — in order to bolster a project. A successful residential developer that wants to build a mixed-use building must think about its retail component with the same level of subtlety and sophistication as the residential portion.

In smaller cities, the retail component can often be of secondary concern to a developer. For example, a proposed new condominium high-rise project in Atlanta was designed with a “throwaway” retail component in its base. The developer sought a joint venture with a retail developer but wanted to design and build the property modeled on a previously successful, residential-only building.The residential developer hoped to attract an organic-style grocery retailer to the base of the new property. This would add costs and work that the already successful model didn’t require — excavation of the basement for the store to accommodate for the store’s parking requirements.

Keeping in mind patrons’ shopping habits, the residential and retail components had different requirements with different financial implications, many of which could not be negotiated.

For example, it would not be feasible for the grocer’s customers to park in the residential lot of the condominium tower and — like a resident — use an elevator to reach his or her destination. A retail base with a residential tower usually requires separate entrances, elevators and other modifications. Coming to grips with the retailer's needs, the developer would have to make these concessions in order for the project to succeed.

Another common mistake developers make is over-customizing the retail space for the requirements of the initial tenant in an effort to lease the space quickly. Historical data indicates that because of bankruptcies, mergers and acquisitions, roughly one in five retailers will disappear within a decade or so. When an over-customized space in a vertical center becomes vacant, it is difficult to release the space without significant modifications to the shell. Designing flexibility into the space is critical for attracting future tenants.

Parking is a Key to Success for Vertical Centers

Some of the most common design mistakes relate to parking — shoppers struggling to remember where they parked, patrons waiting for an elevator in a dark garage or lack of access for shoppers to get in and out quickly. This becomes even more of an issue when the project includes residential uses. Almost always, residential/retail developments require segregated parking.

For a residential garage, columns can be used to designate certain areas, and residents will quickly become familiar with the garage. For residential or hotel parking, it is even acceptable for residents to navigate up a ramp or make a few turns because, over time, they have become familiar with the layout or may even have a reserved space.

However, for a mixed-use building, residents do not want to be subjected to shopping carts in their lot on a daily basis, and retail customers seek a parking lot that is bright, safe and easy to navigate. Creating a solution acceptable to everyone sometimes requires creativity, some design acrobatics and a thorough understanding of building and zoning laws.

Target’s popular two-story format.

Often, a developer thinks that a project’s shortfalls — whether they relate to parking or access — can be cured with signage. However, it is imperative not to overestimate the power of signage. Signage is only an accessory, not a primary aid.

Fondly referred to as the grandmother test, if a typical shopper (your grandmother, for example) needs a sign to figure out where she is going, then the development team has failed in the design. While she may continue to shop at the center because there are no other choices, as soon as a newer or better retail option becomes available, she will not come back.

Local Considerations

Ultimately, vertical retail is going to be unique in every market. New York is going to have different requirements and considerations than Boston, and what works there will not work in Atlanta.

For example, in New York City, three parking spaces are adequate for every 1,000 square feet of retail. Yet in Atlanta, space needs to be allotted for five parking spaces per every 1,000 square feet of retail; otherwise the center will not accommodate enough shoppers to make the retail business successful.

This does not mean that every vertical center is going to be wildly different. In every city, most centers will have some common factors. However, if designers push the envelope too far, consumers will reject the development and the project will fail.

By paying close attention to the most vital factors of a vertical center — parking, access, signage and long-term flexibility of space — developers can ensure their project will be successful for many years to come. John Clifford, PE, is with Atlanta-based architecture and design firm GreenbergFarrow.