What do "Emerging Trends in Real Estate" mean for the commercial district practitioner?

The Urban Land Institute (ULI) and PwC just released “Emerging Trends in Real Estate" 2016 and there are quite a few insights and takeaways for commercial district practitioners. These come in the form of market-based opportunities and threats that will need to be considered - and acted upon - in the coming years.

Here are a few of the findings, as well as some practical takeaways on the impacts and actions that might be necessary....

Opportunities continue to grow in secondary markets – what ULI calls “18-hour” cities. This is great news for many smaller downtown's looking for investment. These are places that still provide investors better upside opportunities, in part because the dense primary markets are already stiff with investor competition. 18-hour cities offer lower costs while maintaining some if not all of the excitement of 24-hour cities. A great competitive advantage is brewing here.

Takeaway: If you are in one of these “18-hour” cities, places like Nashville, Austin, Denver, San Diego…the time might be ripe to revisit your district with an eye towards redevelopment opportunities. Now is the time to find investors and developers who might be more receptive to your pitches.

For all the hoopla surrounding downtown development, suburbs are still a force to be reckoned with. The report suggests that it will only be a matter of time before millennials, many who have deferred starting families, will start heading out to the suburbs to raise families. While 37% of millennials indicate a preference for urban living, we all know how quickly these preferences change when people become parents. That might not be good news for cities that don't stay ahead of these changing preferences. 

Takeaway: Downtown – and its surrounding urban neighborhoods - need to start thinking about how to meet the needs of millennials as they graduate from roommates to partners and families. This will require thinking more holistically. How are the local schools – all the way from elementary to high school? Is the neighborhood safe? Is housing affordable and adequate? And how is the physical environment? Are there safe bike lanes for tots who are learning to bike – i.e. dedicated lanes rather than sharrows? Are sidewalks and crossings - and the whole pedestrian environment for that matter - safe for those ages “8 to 80”, as Gil Penalosa founder of 8 80 Cities, likes to say. Are there adequate playgrounds within walking distance of people’s apartments and homes? While the report didn't mention this explicitly, let's not forget the growing senior demographic. Are these easy places to walk to grab a bite to eat if driving is no longer an option. If not, get cracking!

Work lifestyle and expectations are changing – and this is good news for downtown and other similar urban environments. The growth in co-working spaces is growing as the “gig economy” heats up. Is your city up to meeting the demands of these businesses and the workers they bring? 

Take away: For those districts where real estate development is an opportunity - what is your downtown organization doing to remain attractive to this changing worker lifestyle? Can your organization become proactive in helping to re-position or reuse existing assets to make them more attractive to investors looking to develop this product type? Have you thought of a game plan for how you are going to meet the needs of this growing worker segment? In 2013, the Downtown Brooklyn Partnership, the parent organization that manages three Business Improvement Districts in downtown Brooklyn, NY, helped lead a study and strategic planning process called the Brooklyn Tech Triangle (check out their website and plan here). The effort brought together the public, non-profit and private sectors to ensure everyone was working from one playbook when it came to strategies and investments that would ensure that the area remained attractive to the tech employers - and by extension tech workers. 

Housing in short one word: affordable. The report suggests that the lack of affordable housing for a variety of incomes is especially problematic. Recent housing production has been skewed “toward the luxury end [and] a shortfall of supply in the mid-to-lower end of the residential market is putting upward pressure on pricing…exacerbating already severe affordability issues.” Simply put, the development of luxury product has far outpaced other housing types lately, and the limited supply of more affordable options is being acutely felt in many markets. Without housing for a variety of income ranges, ULI suggests that markets will stagnate a bit. How can a business survive if its workers cannot afford adequate housing or are relegated to a lifestyle that involves a 3-hour round trip commute? As ULI states, “developing improved housing options for everyone…is passing from the realm of “nice to do” to “must do.”  

Take away: Has your community sought to address issues of housing affordability? Do your housing incentives support the creation of affordable housing, for people from both low and moderate income bands? Does your downtown zoning framework outline a clear and transparent process for development, one that offers developers the ability to ascertain costs and development timeline with some degree of precision? 

Parking - we still don't know what the future holds, but hold on tight, because change is coming. The ULI report mentioned trends that are notable, including the decline in driver’s licenses among younger drivers, driver-less cars, car sharing that supports a reduction in car ownership, etc., all things that will change parking demand.

Takeaway: We still don't know what this means, and quite frankly in my opinion, our zoning framework is probably not prepared to accommodate these changes without significant alternations. Keep your eye on what cities of your ilk are doing as they respond to the changing dynamics of parking. 

Infrastructure investments are critical, but don't hold your breath for public money to solve the problem. The need to invest in downtown infrastructure has never been more acute. Deferred maintenance on things from the water supply and distribution, road and bridges, rail and public transportation access, etc. will be our undoing. The cities and downtowns that address these issues will retain a competitive advantage over those that don't. 

Takeaway: In light of this challenge, there may be a need - and opportunity - for BIDs to take on bonding for public improvements as a benefit to their constituents. But keep in mind - in some states BIDs are restricted from or have limits to the amount they can leverage towards bonds, so the enabling legislation for your individual state needs to be considered carefully. 

Food. Food. And more food. 

The trend towards food as an activity, food as a lifestyle choice continues, and downtowns are naturally occurring foodie destinations. The growing demand for interesting food offerings, especially from among those with more discretionary dollars in hand bodes well for downtowns. 

Takeaway: Is your city positioned to take advantage of this trend? Food destinations are usually places where food offerings are clustered. The experience of choosing a place to eat become almost as interesting as the meal itself. In some places these are called "restaurant rows", though food trucks are muscling in on restaurant territory in some places. Is your organization marketing your food options adequately through social media? Do your events give food establishments opportunities to introduce themselves to new customers? Have you found ways to add complimentary experiences - including street buskers, nice places to stroll after dinner...what I call ambient or impulse entertainment? Since most dining happens at night - what is the arrival experience? Is parking adequate and is it safe and comfortable to walk to and from a car? Can you encourage retailers to remain open later on some nights to give diners another thing to do before or after they eat? The list goes on...

Big banks are getting bigger, while small banks are specializing, and the guy in the middle will have to choose. What this means is that financing for smaller projects may become harder because they won't attract the big banks.

Takeaway – Don't despair, this means that regional banks will likely fill in the gap. Have you developed relationships with your local regional banks? Do you have access to – or can you create – dedicated lending tools to help promote development and investment in your district? Projects in the $20 million to $50 million range are what ULI suggests are the sweet spot for smaller investments. Have you looked at your district with an eye towards cultivating developers and projects – either new development or reuse – that meet this criteria?

Finding a way to incorporate these trends into downtown and commercial district strategic planning efforts will remain critical in the coming years. So good luck!

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Roundup: Queens Boulevard Transformation, Philly's Old City Makeover, NYC's 1 Million Trees, Walmart Pull Out

Transformation of Queens Boulevard

For years, Queens Boulevard in Queens, NY was tagged as the "Boulevard of Death" due to its chaotic nature, unfortunate fatalities, and high traffic of pedestrians, cyclists, and vehicles. The city of New York is transforming this thoroughfare with a complete streets makeover. Watch the video.

vimeo.com/153198048

After the Hangover: How Old City Finally Sobered up and Crafted a Grown-up Vision for Itself

Philadelphia's Old City District is turning over a new leaf and shedding its old thick skin by utilizing an organized administration that is engaged with the public in combination with nuisance fighting tactics to make the district desirable for businesses, patrons, and residents.

NYC Just Planted 1 Million Trees. Here's How They Did It.

The story behind how one group managed to succeed where many have failed. Three main reasons why one million trees have been planted in NYC since its inception eight years ago.

Can Cities Afford to Trust Walmart?

After a recent pull out of plans to build a store in underserved Ward 7 of Washington DC and the shuttering of 269 stores globally, some of which were only built within the last five years and inevitably caused smaller grocers or pharmacies to go out of business, city leaders are now becoming apprehensive about striking deals with Walmart.  A small shift with the giant retailer that could cause a ripple effect in the retail market.

The most fundamental thing you need to know before you make your next downtown investment

What is the one most critical factor driving the success of your downtown economy? Getting this wrong could mean millions of dollars in wasted investment that fails to catalyze downtown - and could instead undermine it. Read on to learn more. 

Lessons learned the hard way

A few years ago I was working in a small waterfront community (name and places have been omitted to protect the innocent). To the north lay a large body of water (not many shoppers there!). To the south were certainly lots of people, but most were poised to travel away from the water and towards the malls that have located in more central locations. That said, the town had great bones. Main Street had a charming, pedestrian friendly feel. What’s more, walkable neighborhoods surrounded downtown. These homes, for the most part, had been well maintained and still evoked a feeling of small town living, where parents might send their kids downtown for ice cream with a few dollars in hand. This was the kind of place that many people might want to live.

Yet here we were – with a downtown that was struggling. The local movie theater was on the brink of closure. Vacancies were increasing. Downtown simply could not compete with the pull of nearby shopping malls, with their multiple offerings and centralized location. And even though there was more than enough parking downtown, much of it structured and behind the main street, the parking structures felt unsafe after having been neglected for years.  Dark corridors and broken elevators do not make for an inviting place to arrive for work or a downtown shopping trip.

Over the course of the project, I couldn’t help but notice that the community had also made infrastructure investments, some quite recently, that significantly undermined the downtown economy, and they probably did it without realizing it. Millions of dollars in infrastructure investment had recently gone towards street “improvements” around downtown that did very little for pedestrians, cyclists or those who use public transportation. The improvements were designed only with car owners in mind. It probably made sense at the time. I can imagine the conversation in City Hall … “most people drive, so let’s make sure we make driving through downtown fast and easy, and if they want to shop, let’s make sure they have more than enough parking.” Makes sense on some level. But what they also did was deprive residents of alternative options, options that might make a stroll or bike ride downtown part of an experience - an additive amenity that might make downtown an even more appealing place to visit. 

Unfortunately, poor decisions were made at many levels. The Mayor actively prevented bike lanes from being incorporated into a major streetscape improvement project. The rationale? The lanes would require maintenance and create a liability – costs the City could ill afford. In another instance, the recently reconstructed sidewalks connecting downtown to the surrounding neighborhoods strangely dead ended at major intersections, and often did not connect with existing crosswalks. Where crossings did exist, the crossing light offered barely enough time to cross the street before the light turned green. Everywhere we turned, we saw decisions that made OTHER places easier to access. Was it really a surprise that the downtown was suffering in light of the decisions made over the years? The slow chip, chip, chipping away of accessibility could be likened to the chipping away at the foundation of a house. At some point, the foundation fails and the house collapses.

Why you need to know about location theory
When thinking about access, it is important to understand fundamental economic theory, specifically “location theory”. Location theory states that businesses choose locations that will maximize profit. This theory is the basis of retail site selection as well. Being located in a place that is accessible and appealing to customers is critical to the bottom line. It is why Dunkin Donuts prefers the “inbound” side of the street – people buy coffee in the morning on the way to work. Or restaurants prefer to be on the “outbound” side of the street – people buy food on the way home from work. We also know that customers, especially in this day and age when time is a commodity, prefer to cross-shop, accomplishing a few shopping errands during a single visit. This is why retailers also prefer malls and shopping centers. These are often places designed for the time strapped shopper in mind. The concentration of stores draws more customers than a single store will on its own. (And on an aside, it is also why on-line shopping is so popular. What is more convenient than making a purchase from your home computer or smart phone? But I digress….)

Today I’m only going to tackle pedestrian and bike access....

Tips for taking stock of pedestrian and bike accessibility
When considering how accessible your downtown is, take stock of the following:

Bike access – Bike share programs and bike infrastructure are blossoming throughout the country. And where they have, local businesses seem to benefit. In New York’s Chelsea neighborhood, an NYC DOT study found a 49% increase in retail sales for locally based businesses after bike lanes were introduced compared to a 3% increase borough-wide. As biking becomes more popular as a mode of transit, local business districts, which are more accessible, are in a better position to draw customers from a larger trade area. As you assess your “bike friendliness”, ask yourself these basic questions:

• Does your district offer safe passage for those biking to the district? And are the lanes safe for cyclists of all ages?  In New York for instance, only children under 12 are allowed to ride on sidewalks. As a mother of a 6 year old – I would be thrilled if I could craft an afternoon of bike riding with my son, stopping to eat here or there. But the bike lanes in my neighborhood are shared with the road – not ideal for a little boy still learning to steer properly. So instead we leave our bikes at home, or load them into a car and leave the neighborhood.
• Are there sufficient locations to secure a bike when you reach your destination? If people have concerns about where they are going to lock up their bikes, it could deter their decision to visit your district. Consider that a single parking spot can support 10+ bike parking spaces. Wouldn’t businesses prefer ten shoppers over one who arrive by car?

Pedestrian access – There are two kinds of pedestrian access to consider – one that involves simply getting there and another that involves what happens once you arrive. Those are two different things. Lifestyle centers, for example thrive on the latter. Most customers arrive at these glorified malls - many of which attempt to mimic the Main Street environment – by car. Once they arrive, the quality of the common areas or “Main Street” is what they are there to experience. Like any mall, the owner tries hard to ensure a continuity of retail and an attractive environment. These places try very hard to achieve walkability.

The other kind of pedestrian access is about tapping the built in residential demand from people who living within walking distance of the shopping area. Here is where the “walk appeal” of all the streets and connections to downtown start to make a difference. Why is that? Because walk appeal is often psychological. A five-minute walk through a parking lot feels substantively different than a five-minute walk along a vibrant city street or leafy attractive sidewalk. A short walk on a hot day feels is much less appealing when there is no shade. A resident or office worker will walk further if the downtown environment is more appealing, when there is window shopping to be done or a cool spot to enjoy a nice view. In City’s like New York or London, walking a mile to one’s destination – a 15-minute walk – is not uncommon.

As you consider the pedestrian environment, ask yourself these basic questions:

• Is your downtown environment riddled with gaps in the pedestrian environment? Did you know that even 50 feet of a “poor” environment can keep people from walking past? In 2006 I was working at the New York City Economic Development Corporation, and as part of a rezoning along 125^th Street – which at that time was seeing lots of taking up ground floor retail space – creating dead zones in the evening. What we found was that even these minor breaks in continuity affected people’s perceptions and how far the were willing to walk. So take stock if your district. Is there a vacant lot that needs to be activated? A bank that shuts down at 5 pm? Retail that closes and pulls down roll down gates? All of these things make an environment less appealing to pedestrians. So the businesses located on the other side of that gap, whatever it is, will see fewer customers as a result. 
• Is the five-minute walk shed from your downtown comfortable to walk? Is it safe to walk? Is there proper lighting? Is there shade to protect pedestrians during hot days? I am working in a community right now with a great opportunity to connection a waterfront marina – with lots of visitors to downtown. The problem? A creek and bridge that are uncomfortable to cross lies between the marina and downtown. While most locals think the distance of ¼ mile is easy to walk, on a hot or even warm day, the is brutal.  The sidewalk is narrow and unprotected from car traffic.  Improving the bridge crossing for pedestrians, or even building a pedestrian only bridge across the river – not an insignificant undertaking – is necessary to seam these two assets together. 

Admittedly, every community is just a little bit different. Transportation habits and mores differ by location. Weather, land use patterns, income and demographics play a role in determining what these habits are in different places. While this mean that these principles should be tinkered with and customized for every place, at the end of the day a successful downtown will be easily accessible to as many people using as many forms of transportation as possible. The next time you look at your downtown - try looking at it from this new perspective.