Can you imagine the following scenario?
An architect is working on a shopping center and is trying to design the ground floor retail space. There are a few challenges with the site, and the architect doesn’t have a ton of experience designing retail space. The developer says, “do whatever works.” The architect does his job and completes the design, which includes a set of steps to each retail space, a response to the sloping condition of the site.
Fast forward to building completion. A day care center provider is looking at the space, but how do parents get their strollers into or out of the building? A pharmacy looks at the space, but how do their senior citizens in need of prescriptions get up the steps? And did I mention that the small parking lot doesn’t provide direct visibility to the entrance – something the pharmacy requires to improve the sense of safety for female customers? A doctor’s office looks at the space, but what about his patients with disabilities? A Dunkin Donuts looks at the space. The voltage specifications are off, and anyway, the columns are in all the wrong places. A small format grocer looks at the space, but why isn’t there a dedicated loading zone, moreover, the ceiling heights are way too low to meet the grocer’s needs.
No surprise, the space lies vacant for months and months. It’s hard to believe that any shopping center developer would take such a cavalier attitude with their multi-million dollar investment.
Now let’s replace “shopping center” with “mixed-use affordable housing”, and we have a TRUE story inspired by a recent conversation I had with a successful architect who shared a story about a former client.
So why am I talking about affordable housing, isn’t this the Commercial District Advisor? In many communities, mixed-use affordable housing projects are an extremely effective commercial revitalization strategy. Housing creates density and demand for products and services, which in turn creates opportunities for retailers. Housing can also stabilize a district and can serve as the catalyst for private investments. Yet as the example illustrates, there is a problem, and it’s a big one.
In New York City, a recent study by the Department of Housing and Preservation found that the vacancy rate in mixed-use projects was 27%. To see how astonishing this is, let’s put this number in context. In April, the Wall Street Journal wrote “Mall vacancies hit their highest level in at least 11 years. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.” [“Malls Facing Surging Vacancies”, April 7, 2011] So, if the WSJ considers a “surging” vacancy rate to be 9.1%, a 27% vacancy rate is CATASTROPHIC.
WHAT IS GOING ON HERE??
The problem is complex, and is not only related to poorly designed retail space (although that is a tremendous problem). In many cases, developers have limited familiarity with retail space and actually say “do whatever works” to their architects. They also use public funds in the form of tax credits for the residential portion of the building. With building budgets tight, the pressure is on to make the residential portion of the building as efficient as possible. This sometimes results in oddly placed columns that break up the ground floor space and make it less attractive to retailers. In some cases, it is market related. Developers are creating ground floor retail space because it is the popular policy approach, yet in some areas, the market may yet be too weak to support it.
A few years ago, I took a CDC to the International Council of Shopping Center’s annual conference in Las Vegas. The CDC has created marketing material, had site plans for a mixed-use affordable housing project, and was ready to pitch the ground floor retail space, located on a future transit line, to drugstores. The response was lukewarm. In part because of some of the problems raised above. The columns were in the wrong places, the dimensions did not meet their typical format, and most importantly for the retailer, the parking lot was not visible from the front entrance. The CDC went back to the drawing board and redesigned the building to incorporate the retailers suggestions. Their first design, which reflected a significant investment of time and resources, went down the drain.
So how do we ensure that affordable housing developers make better decisions for their retail space? Here are a few tips:
- Start early: During design, consider the ideal uses and retailers for the space, investigate their site selection requirements and share those with the architect.
- Know the market: Don’t assume “if you build it, they will come”. Know your market. Are small spaces in the neighborhood being snatched up? Or is there pent up demand for larger retail spaces? This will inform how you market and divide the space.
- Talk to commercial brokers: Brokers will have insight into which spaces are moving and which aren’t. They may be able to pinpoint the retail categories that need space, informing your final design. For instance, if there is a need for restaurants, you may want to incorporate venting into the design. Doing it after the fact is often cost-prohibitive.
- Take care with architect selection: Select an architect with a track record of designing commercial spaces that have been successfully leased. They will know how to address things like ceiling heights, loading/unloading zones, signage, and the need for storage and office space, etc.
- If the market can’t support retail, don’t force it: Consider other uses for the space, including services like medical offices, day care, etc.
- Consider pre-leasing: Talk to retailers during the design process, and allow them to help customize the space for their needs if they sign a pre-lease. And better yet, a pre-leased space, or at the very least, strong stated interest from a potential tenant can making financing easier to obtain.
A little advance planning can reap significant rewards. A space that is leased quickly provides cash flow, enhances real estate value, and helps invigorate a street – a win-win for everyone!