For decades, retail owners and shopping center developers focused their attention on giant, vacant parcels of land in far-flung suburbs – erecting stores and offices within driving distance of nearby residences. Malls flourished with the popularity of the automobile, and the growth of the highway system made it possible for Americans to travel with ease. According to the book Principles of Urban Retail Planning and Development, retail market share in center cities dropped 77 percent between 1954 and 1977.
But these days, sweeping demographic changes and higher transportation and gasoline costs – combined with the recent housing recession – have helped reverse that trend. According to the U.S. Census Bureau, the annual growth rate in American cities and their immediate surroundings has surpassed that of the suburbs for the first time in 20 years.
Downtowns have become entertainment districts, with an influx of boutique stores, restaurants, bars, cafes, clubs and other venues catering to urban dwellers and suburbanites seeking something new and exciting. Time-constrained lifestyles and boredom with the homogeneity of most malls, as well as the rise of online shopping, have meant a slow but steady decline in the number of shoppers and the length of stays at malls. With an increasing number of young millennials and older baby boomers rejecting the traditional suburban lifestyle in favor of urban living and shorter commutes, it’s time to rethink the old development patterns.
Here is some insight into the mixed-use urban retail development trend, as well as some of the rewards and risks of locating in-town.
Downsizing the Big Box
The more consumers move downtown, the more high-density development sprouts up accordingly. As the population shifts from the suburbs to the urban core, big-box retailers have become interested in making a similar move because urban areas represent an “untapped market,” according to an International Council of Shopping Centers (ICSC) report. For example, three of the largest suburban retailers, Home Depot, Target and Wal-Mart have created smaller urban stores they are placing in mixed-use areas throughout the country. However, challenges exist in the mixed-use urban retail arena due to structural constraints ranging from aggregation of small parcels and inefficient or non-existent parking, to complex zoning and urban planning issues. As a result, the retailers have to create, and in some cases, are forced to adopt, a smaller-than-normal footprint, ditching huge displays for smaller ones, and focusing on locally grown products, organic produce, ready-made sandwiches and household supplies ideal for urban residents on foot or commuters riding public transportation.
On the flip side, many niche businesses and boutiques, both existing and startups, have had an easier time achieving success. Their flexibility in tweaking their in-store design and operations has proven successful at beating larger retailers at their own game. One of my favorites is the boutique multi-store Royal Blue Grocery located in Austin, Texas.
One of the best ways to ensure a successful mixed-use urban development is to enlist the support of local government and industry. Good data and site selection models might generate early interest, but a deep public and private partnership can help close the deal. When it comes to my own company’s development patterns, we’ve really been influenced by the idea of "connected capitalism," a movement created by Neville Isdell, the former chairman and CEO of Coca-Cola. Yes, companies and developers must be able to turn a profit. But social responsibility is critical and we should serve as stewards for smart development that complements the area. It’s our responsibility to create something that is of interest to residents and enhances the community, rather than detract from the environment around it. For example, in Tuscaloosa, Ala., we’ve unveiled a new bike share program to connect our communities and provide a pedestrian-friendly option for residents or visitors who want to live, shop and dine without needing a car. We have also worked closely with city leaders and retail specialists to build integrated residential units and commercial space that will benefit the surrounding community.
Rewards vs. Risks
It's been reported that average rent growth has been about 2.5 times greater in the Central Business Districts than in the MSA. In addition, CBD rent growth outpaces the MSA 67 percent of the time and is on average 1.5 times greater in magnitude. Leasing challenges for many downtown areas is not a demand for space, but rather a supply of storefronts suitably situated to help create the effects of agglomeration economics.
As more people work downtown and reverse course to choose large cities over the suburbs, businesses and mixed-use developers will find plenty of opportunities. The trick is in navigating the risks and costs involved – such as land use regulations, outdated zoning criteria, contaminated sites, smaller parcels, unproven market area, tighter construction areas, local politics, community outreach and education of the economic benefits to the area, both indirect and direct. So before making any decisions, research potential sites, talk with local planning officials, meet with political representatives, pinpoint competitors and identify ideal tenants and a mix of uses that is complementary to neighboring businesses and residential communities. These tactics will help to boost your own property’s success.
— Judd Bobilin is CEO & president of Chance Partners, a real estate firm specializing in mixed-use multi-family developments throughout the Southeast. He is a member of the Urban Land Institute, the Multifamily Council of National Association of Home Builders (NAHB), Atlanta Home Builders Association, and an advisory board member for the Georgia State University Real Estate Department.