Thursday, February 19, 2009

Why do Affordable Housing Developers Struggle to Fill Ground Floor Retail Space?

It is such a noble instinct that sometimes goes awry. Affordable housing developers seek a way to diversify their income stream or respond to civic desire to create walkable mixed-use commercial districts. Why then do these ground floor retail spaces sometimes lie vacant for years?

This story is played out again and again across the country. Often, ground floor space in these projects is poorly designed, more of afterthought than a space planned with a retailer in mind. The space may have columns or an elevator shafts running through it, it may be too deep, or have inappropriately located front door that lacks visibility or access to parking. Affordable housing developers know housing - but the lack of knowledge about what makes a retail space work sometimes means that a retailer must fiddle with their format to make a space work. In markets where demand is untested, few retailers are willing to incur the additional cost associated with making changes to their store format. And in a market where there may be many vacancies - poor design may make a space significantly less competitive than another spaces, resulting in prolonged vacancy...a situation that developers and lenders would like to avoid at all costs.

Another frequent problem is the inclusion of retail space in areas that lack the pedestrian or vehicular traffic and/or visiblity to warrant retail at all. Consumer demand in a neighborhood may already be served by existing retailers - and the additional of more retail space on the market only creates a glut of space for which there is no demand.

Early due diligence, including outreach to retailers and brokers before and during design and development, and adequate commercial market analysis at the outset, is critical to prevent these problems.

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