Vacant Spaces: Blame it on the Bubble?

Dan McCombie is a research associate at Larisa Ortiz Associates

In my last blog post, I briefly discussed how in a down market some building owners choose to hold their retail spaces vacant, holding out until the market rebounds rather than get locked in to an agreement with a lower asking rent. I closed the post by saying that regardless what tool is used to address vacancies (whether that’s through a vacancy tax, a pop-up model, or through some thoughtful rejiggering of lease structure) the important point is that something gets in the space for the overall health of the district. But is this too simplistic? I wanted to dig a bit further. In particular, I wanted to better understand more of the reasons behind vacancies, especially when there are so many ways to temporarily activate the space and earn a rent roll without getting locked into a long-term deal. 

In an article by Konrad Putzier and Marker Maurer, writing for The Real Deal, the authors discuss how lease agreements can be structured in many different ways with varying impacts on rents. They give the example of a 27-story office building at 650 Madison Avenue. Despite soaring property sales citywide, the ground floor retail tenant of this building had a long-term lease with a below market rent. This below market rent held resulted in a lower net operating income, and therefore a lower perceived value for the entire building. If the property owner wasn't looking to sell, it wouldn't be a problem. But in actuality, the owner was looking to take advantage of a strong real estate market. What could they do? 

What they did was renegotiate the terms of their lease such that the retail tenant would pay a higher rent in exchange for cash payments from the owner. With the building showing a higher rent roll, it was able to command a higher value on the open market—eventually selling for a 91 percent premium over the cost of the original acquisition. And the buyer was made fully aware of the arrangement between tenant and landlord regarding the cash payments. 

650 Madison Avenue
Source: Google street view, Oct 2017

Another negotiable concession are tenant improvements (TI). The authors of the article describe a situation where a building owner providing substantial TI is akin to the tenant taking out a low interest loan from the owners instead of seeking outside financing with a less favorable rate. In that regard its win-win. 

The article goes on to state that this practice is not limited to retail. This is something I know to be correct, having shopped for a rental apartment and seen the offers boasting “first month free.” In these lease agreements, the tenant is essentially agreeing to pay the same annual rent, but spaced over 11 larger payments instead of 12. It works well for transient tenants like students or young professionals that don't typically sign for longer than a year, and allows the building owner to show a higher rent roll. 

This all answers to some degree the question why retail rents might be a bit "sticky" and cause vacancy rates to rise, even as news of the retail apocalypse echoes overhead. Lowering retail rent represents a direct hit to the value of a much larger asset. Except the practice can perhaps buoy rents beyond what retailers are willing to pay. Today a growing number of larger retailers are realizing their rents are not pegged to anticipated sales. The following quote from the article sums it up:   

It was in March of 2017 that Urban Outfitters' CEO Richard Hayne first likened the retail environment to the housing bubble, apportioning much of the blame in store closures to eCommerce and the burden of real estate oversupply. Putzier and Maurier differ in that they see a stronger parallel between the inertia of untethered optimism in housing values, and what had been longstanding optimism in retail rents. But there are myriad ways the current retail moment and the housing bubble are different. The housing bubble burst because of the securitization of subprime mortgage debt, not because everybody discovered they could now buy their homes from Jeff Bezos. What I mean to say is we still consume housing in basically the same way as we did before the bubble. But contemporary retail consumptions feels to be a bit more avant garde with more showrooms, less inventory, rapid fulfillment, and everything in between.   

Are we seeing a correction?

In Cushman and Wakefield’s most recent retail market report for Manhattan (Q1 2018), they identified three recent trends:

1. Almost all retail sub-markets posted reduced asking rents due to additional stores coming to market with lower asking rent (the only exception being the Meatpacking District).

2. The SoHo sub-market recorded its eighth consecutive quarter with a drop in asking rents

3. Announcements of new pop-up store openings have slowed down, signaling the trend may be losing some of its steam.

Source: Cushman and Wakefield, Marketbeat Manhattan Retail Q1 2018

Is this a correction? Are we seeing retail rents align with a more realistic market value? Is there a direct correlation between pop-up shop announcements and retail rents? Difficult to say. It does seem to say that property owners are becoming more inured to a condition they thought would be temporary. But an article from The Real Deal out today tells a different story, of rising rents in Brooklyn corridors where new development is taking place. Their narrative is one that says it's mature (and more competitive) markets that have had to adjust their rents while retail pioneers seem to still be doing alright. 

What does this mean for district managers?

It's important to think strategically when approaching vacancies. If you observe a high rate in a district, you might now wonder if it stems from a lack of customer demand, or determine if there is simply a mismatch between asking rents, the tenants who can pay those rents, and if those specific tenants are in demand. Are local property owners institutional investors, or are they longstanding residents with no debt on their property? And of course, there may also simply be an issue with the individual operator, which is a whole other discussion. These are all good and necessary questions to ask oneself. Without asking them we cannot hope to arrive at good and necessary answers for addressing vacant spaces.

Thanks for reading!

Retaining "Mom-and-Pops" in the New Retail Reality

Dan McCombie is a research associate at Larisa Ortiz Associates

Lots of rumblings lately about the statement New York Mayor Bill de Blasio made on local radio WNYC, wherein he spoke about his receptiveness to a commercial vacancy tax to address rising vacancy rates in the city. The issue is decisive to say the least. Certainly we don’t need to go into detail about all the reasons why retail vacancies are problematic (apologies if you’re new to CDA). Nor should we fail to recognize that using public policy to regulate private property is nothing short of a perennial third-rail. What’s the right move?

My purpose in this blog post is not to wade into the vacancy tax debate. It's a complicated issue. Yes, vacancies are problematic and in many instances can create a chain reaction to eventual blight. But policy prescriptives, even with the best intentions, can also be clumsy tools. You want to save mom-n-pops so you tax the vacant space. But if the landlord decides to swallow the cost, or brings in a Verizon Store instead, what did you really solve for?

Photo: essygie

For me, the interesting part of this debate is in understanding how developers and property owners are exploring how to tenant retail spaces with local and regional independents instead of nationals. Why? Because these classes of tenants are typically less "credit-worthy" than your Bank of Americas, Verizons, and Dunkin Donuts, and therefore carry more risk for investors and owners. But they also  have the capacity to bring much more in the way of unique character to a commercial district. So what can be done to mitigate against the credit risk? I found the following example telling...

The Market Line – Lower East Side, MH

The following statement came from Essex Crossing marketing material and can also be found on the Market Line website:

“Anchored by the new Essex Street Market, The Market Line will extend three full blocks from Essex Street to Clinton Street. With over 100 vendors and 150,000 sf of gross floor area, The Market Line will be one of the largest markets in the world, reminiscent of iconic locales like Boqueria, Borough Market, the Grand Bazaar, and Pike Place Market. While there will be an unparalleled collection of prepared foods, this will not be a food hall, but a market. The Market Line will be a microcosm of the Lower East Side with an eclectic mix of local food purveyors, artists, gallerists, musicians, and designers…” (emphasis added)

The emphasis on the local independent tenant mix is worth noting. The other day I spoke with an individual with some knowledge regarding the tenanting strategy for the Market Line, and I posited the question: “How does one tenant a space with local and regional operators when many investors perceive them as carrying more risk?” The response was fairly simple:

1. Provide smaller floor plates with shorter-term leases
2. Partner with architects/designers to create and curate attractive turnkey spaces
3. Seek out tenants with a proven record of success

Again, none of this feels surprising. But it helps to contextualize these tenanting strategies within larger trends. Retailers across the board are right-sizing into smaller spaces, which may be more costly on a PSF basis, but cheaper on the whole. And a whole new industry is sprouting up around the design, buildout, and brokering of flexible pop-up spaces. The Market Line seems to demonstrate how these play out at the ground level. Yes, having a short term lease may be untenable for many, but the property owner can certainly mitigate against this by providing more upfront support through tenant improvements so the merchant doesn't feel like their throwing their money away on the build out. To understand this further let me present two more cases...

Photo Credit: The Market Line

Williamsburg, BK

Consider the case of the impending L-Train subway shutdown and the Williamsburg neighborhood in Brooklyn. Fears are that without a direct link to Manhattan, merchant performance is going to take a hit during track work, and so many of them have left or attempted to negotiate lower rents. Rather than bring down rents to offset the hit, some landlords have opted instead to weather the storm until the work finishes, believing an empty storefront is preferable to signing a long-term lease with a myopic rent. As a result, the retail vacancy rate in the neighborhood was recently reported to be at 13%, which is definitely cause for concern. Are the property owners right to hold tight until business as usual returns? Next example...

The Shay – Washington, DC

A relatively new mixed-use retail development in the Shaw neighborhood of DC, “The Shay,” has also been struggling with retaining retailers. The primary reason for this is that the tenanting strategy from the outset was admittedly a risky one. Jay Klug, executive vice president of retail at JBG Smith (the developer), confirms that instead of focusing on restaurants and national chains (low-risk) they would seek smaller stylish brands looking to expand into the DC market. In order to entice these tenants, the developer negotiated percentage rent agreements. Steve Gaudio, VP at JBG is quoted as saying “There was a risk that their percent of sale would never be that high, so there were different flexibilities for both the landlord and the tenant to determine, if this didn’t work out, that they could walk away.” As might be expected, many tenants didn’t hit their marks and did walk away. But notably, many of those tenants were soft-goods brands like Kit and Ace and Steven Alan, and were subsequently replaced by businesses like “The Shop” hair salon and “Turning Natural” smoothies shop. This is not to imply that soft-goods and apparel/accessories can’t survive; the Shay also houses the first DC location of Warby Parker and the fourth Bonobos location in the region, both of which have been said to be performing at a high level. What it says to me is this development may want more high-end neighborhood-serving uses and less comparison goods. In any event, the mix needed to be tweaked a bit, especially for a new concept still establishing an identity.

Photo Credit: The Shay

The Takeaway

The Market Line tenanting strategy has flexibility built into both the lease and the space itself so that if a tenant isn’t working out, the arrangement can be modified expediently. The Shay, adopting a similar tenanting strategy, uses a different mechanism with percentage rent agreements. In Williamsburg, some owners are simply holding their breath. Are any of these success stories? Hard to say. The Market Line hasn’t opened yet, and The Shay is still struggling with vacancies. Both are big (150K SF and 120K SF, respectively) and have the benefit of a single entity curating the space, and lots of design muscle behind them to make the spaces attractive to tenants. And even Williamsburg is a bit of a snowflake; it's an iconic neighborhood so it may be able to hold on after all. For that reason, I caution against making too hard and fast a conclusion. But the one thing that seems to have unanimous consent these days is that retail has changed, and likely changed irrevocably. As a result, we need to be creative with how we tenant spaces and not be afraid to tweak not only the mix, but the way spaces are constructed and agreements are negotiated. And there’s no way to know what works when the space is empty. 

Thanks for reading!

Related blog posts:  
The Original Food Hall
Here's What to Expect in 2018 and Beyond
When Skyrocketing Rents Don't Always Mean the Death of Small Business

Is micro manufacturing the future of main street?

Nur is an Associate for Larisa Ortiz Associates

Empty storefronts on the main commercial
street in Nunda, NY (Photo: LOA)

In the last year, we’ve worked in a wide range of communities – from the bustling and dense metropolitan streets of Cambridge, MA to the quiet and seasonal towns of Hudson and Livonia in upstate New York. No matter where we’ve gone, the growing trend of online shopping continues to bring bleak prospects on the future of main street storefronts. Many sit vacant in the communities we’ve worked with and although pop-up retail concepts (as we’ve written about here) can be a quick, short-term solution to filling these ground floor spaces, we continue to wonder what else might feasibly fill these gaps?

Well, the answer that is beginning to surface in a few towns across the country, is Micro Manufacturing. For years, Euclidean zoning has prohibited all manufacturing uses in residential areas across many cities and downtowns to keep out “nuisance” such as noise and noxious by-products. Naturally, mentioning the word ‘manufacturing’ in a downtown discussion will raise eyebrows amongst the misinformed. Micro Manufacturing however, as we will discover, is a unique form of manufacturing that can bring more jobs, uses and vibrancy to underutilized spaces downtown than it might ‘noxious by-products’ and ‘noise’. Here’s why.

Dough on Lafayette Avenue in Brooklyn, NY produces dougnuts
for sale direct to consumers and wholesale to cafes
and Whole Foods across the City. Photo: NYHabitat.

Micro manufacturing, or small-scale manufacturing, is characterized by artisan goods that are produced in small quantities using small hand tools or light machinery. These goods can be made direct for consumers or for other businesses (for example, baked goods that can be sold wholesale to delis, cafés or restaurants). Recently, in the US, this subset of manufacturers has grown exponentially due to the growth in consumer demand for ‘local’, ‘homemade’, ‘artisan’ goods. In addition, technology has ensured that access to online marketplaces has lowered barriers to entry for such small scale producers. 

Since many of these micro manufacturers don’t require large floor plates to carry out production, they are extremely viable tenants for the many small- to mid-sized vacant storefronts that plague our main streets, provided zoning is made flexible enough to support these uses without having to undergo substantive variance proceedings. In our work in Cambridge, MA, for example, a small microbrewery that was both producing craft beers on-site for wholesale purpose and selling beer on tap direct to consumer in a tasting room was required to apply for a variance given that it did not fit the traditional ‘retail use’ category as outlined in the city’s table of uses.

Moniker Warehouse in East Village, San Diego hosts not only makers
but also events open to public and consumers. Photo: Moniker Group.

Consumer-facing producers that create high-value items with small equipment, like jewelry, scarves, and small furnishing goods, typically require small workshops that measure 400-800 SF each. Housing eight to ten of these artisanal producers in a single storefront will not only remove the break in retail continuity on Main Street but also potentially increase foot traffic through the creation of a new, experiential destination for those visiting downtown. I’ve seen beautifully embroidered purses being made in real-time at markets in South East Asia and have always been enthralled by the process. Once or twice, I’ve even stopped to chat with these women making the goods and trust me, these have become some of the most memorable consumer experiences for me. Imagine creating a storefront/workshop full of such opportunities in your downtown! 

Photo: Detroit Kitchen Connect.

Micro manufacturers involved in food processing and food production are also another group of potential tenants for ground floor vacancies. Although these producers require more than just a small space (they need the right kitchen facilities, storage/cooling facilities etc.), they are incredibly crucial to the growth of food and dining businesses in a city. Many producers that start in shared kitchens measuring a meager 5,000 SF have gone on to establish full-service restaurants, expanded to roving food trucks, or even created special sauces for restaurants across cities. Providing a small, starting platform for these producers in a form of a shared kitchen on the ground floor of your downtown can mean much more for your dining scene in years to come. 

While it’s great that micro manufacturing might be the answer to the future of Main Street, its benefits indeed go far beyond filling vacant ground floor retail spaces. Micro manufacturing can increase supply of locally-made goods and services (thereby increasing a city’s ‘Shop Local’ brand) and also increase sales tax revenues. Most importantly, micro manufacturing is also a great source of inclusive and well-paid employment for downtown residents. There are minimal risks involved in entering this sector which means that underserved, low-income, minority individuals can more easily participate in the economy. Research from the Brookings Institution even showed that advanced industries (which includes small-scale manufacturing) pay more than retail at every education level.

So how can our downtowns and cities show even greater support for micro manufacturers beyond providing space on Main Street?

Create a one-stop shop for micro-manufacturing assistance and resources

Current small business services provided by governments often aren’t tailored to the unique needs of micro manufacturers.  As a result, it is important to create a physical or virtual one-stop shop for all resources specific to these businesses, including legal assistance, loan/ grant funding support, workshop space leasing guidance, mentoring and networking services, and advertising support.

Launch a collective marketing brand for micro-manufacturing

This may be local or even regional marketing campaigns that highlight micro-manufacturers and their unique goods and services. An online directory of all participating manufacturers and products will raise awareness of consumers and businesses to available local producers. The Made in Baltimore Campaign was funded by a grant by the US Economic Development Administration and has led to the creation of a seal that is given to all members to use on products, packaging and promotional materials, and also led to the creation of events celebrating the culture of manufacturing in Baltimore, MD.

                                                                                                                                          

Establish a governing body overseeing all of the above functions

In Knoxville, TN (also branded “The Maker City”), a Mayor’s Maker Council has been established to develop a shared vision for the region’s diverse maker community and raise awareness of local micro manufacturers and their goods and services. Fifteen members currently sit on the Council, all appointed by the Mayor.

In order to ensure the vibrancy and continuity of our Main Streets can be saved by micro manufacturing, we need to ensure that administrative, financial, and zoning/land use tools are put in place to support these micro manufacturers first. We can’t wait to see how our future main streets evolve and adapt to the changing needs of micro manufacturers!

Prospecting White Elephants: Some Thoughts on Pop-Up Brokers

Dan McCombie is a research associate at Larisa Ortiz Associates

Last week I read an article by Matthew Flamm in Crain’s Business where he talked about the rise of a class of real-estate brokers specializing in pop-ups for vacant spaces. This struck me as an interesting development since we have several entries on the blog discussing how vacant retail storefronts—otherwise known as White Elephants—can have detrimental effects on the health of neighborhood downtowns. My understanding is there are two main reasons for this.

First is that it results in shorter shopping trips. A blank storefront can be an uninviting visual eyesore that discourages foot traffic. Perhaps it’s located in the middle of a corridor in such a way as it feels like it segments it into two unrelated districts.

Second is that it reduces the number of shoppers visiting the district. A hole in the tenant mix reduces retail density, creating one less reason why a shopper might think to make a trip. Maybe a coffee shop closes down next to a bookstore, and this prompts people to patronize the bookstore less.

Source: Thisopenspace.com

There are plenty of other reasons too. Vacancies are obviously an issue for landlords because they represent lost revenue with potential snowball effects. Imagine the impact when a large mall anchor like Nordstrom or Macy’s decides to close up shop. Once it’s out, it’s only a matter of time before the smaller in-line stores see their sales diminish and also start disappearing. It’s an extreme example but demonstrates why vacancies are problematic, and also why some landlords might consider subsidizing certain tenants or encouraging pop-ups to retain a healthy tenant mix.

So the presence of pop-up brokers sounds good, right? In effect, they provide a real service to commercial corridors by rounding up all the White Elephants into a directory and curating them to prospective retail tenants. These tenants can be small start-ups looking to test the market, e-commerce retailers looking to transition into brick-and-mortar, or more well-established brands who are looking for an experiential pop-up opportunity to engage their customers in new ways. And whether or not you believe we’re in the middle of “retail Armageddon,” it’s a creative solution for the growing number of vacancies in neighborhoods like SoHo where the perception is this trend will only continue.

Available vacancies clustered in lower Manhattan
Source: Thisopenspace.com

And these brokers have managed to turn it into a process as seamless as booking a hotel room or an uberPOOL. In past posts we’ve advocated that commercial district managers take on the task of populating vacant spaces; but now we’re seeing a quintessentially private sector solution which is fast, easy, and done on an app in minutes. And that has given me pause….

…It feels a bit inaccurate to say this is a solution for ailing districts and long-vacant spaces in search of a tenant. Perhaps it’s true that was part of the initial inspiration, but now it sounds like it’s becoming a high growth industry unto itself. I think Matthew Flamm’s use of Airbnb as the residential analog to these new companies is appropriate. My initial understanding of Airbnb is that it was just another component of the growing gig economy and a way for cash-strapped Millennials to make a few extra bucks off their couch, their car, their whatever it may be. But now I understand it can be an agent for speculation too—like when the gap between a rent or mortgage payment and the going rate on Airbnb becomes too great for people to turn down. I’m not taking issue with anybody who might purchase a condo with the express intention of having it listed on Airbnb as an investment, but I am expressing caution about companies that see an advantage in maintaining a steady supply of vacant storefronts, or landlords that believe they can make a better profit through punctuated short-term rentals. It feels like profiteering off the White Elephants.

Downtown revitalization is not in the mission statement of these pop-up brokers. One explicitly states on its website that prospective tenants should be wary of inquiring after un-vetted spaces precisely because they’re probably “situated in low footfall area[s]” or have “zero potential for retail or brand marketing.” The assertion suggests their portfolio doesn’t include spaces that are unattractive, but is rather a professionally curated assortment of opportunities in a pay-to-play scenario. Again, I’m not decrying a company’s attempts to distance itself from the competition, but trying to make the distinction between a company providing a service to an individual client and a district manager looking out for the health of the larger district. That being said, the potential for dynamic shopping and unexpected retail under this pop-up model sounds fun. And I’ve read many broker success stories about clients who turned a successful short-term rental into a long term lease agreement.   

  

Most of these pop-up brokers are active in dense urbanized areas. If you’re a commercial district manager in a town of less than 20K, it might be a minute before you see a private pop-up broker looking for vacant spaces, and so this screed is probably for naught. And if you’re a district manager in a large city or a neighborhood like SoHo, the troubling number of vacancy rates may warrant a larger discussion about rental rates in that district, and whether “retail Armageddon” is a legitimate characterization, or if it’s more likely a self-inflicted wound and one that can be addressed through some retooling (to which I recommend reading Larisa’s latest post).

To summarize it all up, I think the development of pop-up brokers is an incredibly interesting phenomenon. Are they solving the vacancy problem caused by structural changes happening in retail? Or are they profiting off the presence of White Elephants? No reason why it can’t be both. If Airbnb and the changing state of retail provide any sort of indication, we can be sure they’ll be around a while yet. I believe that's a good thing if at the end of the day it means less vacant storefronts.    

Past blog posts that explore vacancies and pop-ups:

Temporary stores fill vacancies and serve as an incubator for local entrepreneurs

Drive Retail Traffic: Using Vacancies for Art Galleries and Pop-Up Stores

Pop-Up Stores: Here to Stay?

Retail Incubator Models and Downtown   

Brooklyn Chamber hosts panel discussion on "How to Save Brooklyn's Retail Corridors"

Join us on Friday, June 17th from 8:30-10:30 am for a panel hosted by the Brooklyn Chamber of Commerce on "How to Save Brooklyn's Retail Corridors." A diverse group of community leaders, retail consultants and brokers will be on hand to discuss why corridors in Brooklyn seem to be facing growing vacancy rates even as the borough sees incredibly strong economic growth.

Speakers include:
- Carlo A. Scissura, President & CEO, Brooklyn Chamber of Commerce
- Hon. Jo Anne Simon, Assembly Member, 52nd District
- Hon. Brad Lander, Council Member, 39th District
- Larisa Ortiz, Principal, Larisa Ortiz Associates
- Tim King, Managing Partner, CPEX

For more information and to RSVP, CLICK HERE

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.

Roundup: Best Practices for Generating Pedestrian Activity, Cons of Mixed Use, Detroit's Two-wheel Culture, Abandonment of Suburban Office Parks, and Chicago's Riverwalk

Which Streetscape Features Best Generate Pedestrian Activity?
An academic publication by Reid Ewing et al, examined which features and elements most effectively encourage pedestrian activity. They found that three of twenty features had a significant impact on ped counts: the proportion of windows on the street, the proportion of active street frontage, and the number of pieces of street furniture.  Fascinating and good news for districts who want to know what kinds of street furniture they should invest in!  Direct link to publication here (accessible through Aug 31).

Big City Dreaming: The Sometimes Mixed Results of Mixed Use
As the pendulum has swung away from Euclidian zoning toward mixed use, there are some hazards that practitioners should be aware of. For example, too much vacant retail has become the unintended blight of mixed use in smaller urban/suburban areas - "too many cities are insisting on mixed uses in locations that are, at best, suitable for a single use."

Detroit Bike Culture Is Unstoppable
Two wheels are starting to dominate the scene in the city known for four wheels.  Despite the city dealing with bankruptcy and blight, the Motor City of Detroit continues to see a renaissance that expands year after year.  A weekly bike meetup, the Slow Roll, now has thousands of riders. The bike lane network will expand to 200 miles. The annual Tour de Troit will have an estimated 7,500 riders this fall. And new bike oriented businesses are sprouting up.

The old suburban office park is the new American ghost town

Suburban corporate campuses came on the American scene in the 1940's outside of Birmingham and spread thereafter, but have reached a tipping point especially in the suburbs of Washington DC where it is reported that there is enough vacant office square footage to fill the Mall of America four times over and fill most of the Pentagon. See what and why...

Celebrating Chicago's Must-See Public Realm 

Chicago continues its reputation as an architectural magnate with the addition of new public spaces on the Riverwalk. Chicago has tried before to create public space along the Riverwalk, this time however, with wonderful conceptualization, craftsmanship, design, and detailing, appears to be a public space that will connect the public to the water effortlessly for a long time to come.

What do you get when health care needs and vacant retail space collide?

An Urgent Care Clinic recently opened
on a busy retail corridor in my neighborhood. 

For anyone driving past commercial strips lately the answer is obvious. Urgent Care Clinics. 

Retail medicine is what this is being called - and urgent care providers are looking for many of the same things that other retailers looks for - visibility, convenience and lots of traffic. The high visibility is important because folks often don't plan visits to urgent care as they would with their regular doctor. So a tucked away office just doesn't cut it. Patients instead go to the places they remember passing on the way to and from work, or the one next to a store or shopping district that they frequent.  

And watch out, because the industry is growing rapidly. In 2014 the industry took in $16 billion and handled 160 million visits. According to Bloomberg News, "the number of walk-in retail clinics in the U.S. has risen 20% since 2009, to 9.400 last year". 

Landlords like medical tenants because they have good credit, sign longer leases and are willing to pay the kinds of rents that landlords have come to expect. The industry is structured much like traditional retail, including independently owned chains like American Family Care, based mostly in the Southeast, and Concentra, a publicly traded company with 300 locations nationwide.

So the next time you are trying to figure out what to put into vacant ground floor retail space, you might want to consider taking a look at urgent care clinics. Below are the top five largest chains. 

Source: Forbes.com

Resources and reading:

• The Urgent Care Association of America is a good resource for identifying accredited chains that are doing business in your community. 
• "Drive-Thru Health Care: How McDonald's Inspired An Urgent Care Gold Rush", Forbes.com. 7/21/14, 
• "Retail, urgent care clinics grow amid health-care changes", Stamford Advocate, 2/22/14

What is the Secret of Suburban Downtown Success?

Peekskill, NY - a quintessential suburban downtown

New research in the field of commercial revitalization can be hard to come by. So I love coming across reports that help practitioners in their daily decision making about what to do - and what not to do - when it comes to advancing the cause of downtown economic development. To that end, the Delaware Valley Regional Planning Commission recently released a report ("Revitalizing Suburban Downtown Retail Districts: Strategies and Best Practices") on Suburban Downtown Retail Districts that I found quite interesting. The study considered 71 suburban downtown districts in the Greater Philadelphia region and sought to determine what strategies had the most impact on efforts to revive the districts and to further their economic development goals. 

What Doesn't Work

Before we get to that part, I particularly enjoyed reading the sidebar on what things DON'T work...they called this piece "Polices that Impede Downtown Retail Revitalization". Here are the things you DON'T want to do if you seek a successful downtown district. 

• Constructing ring roads/bypasses 
• Creating pedestrian only zones and parking in remote lots 
• Relocating municipal functions away from downtown 
• Removing on-street parking 
• Creating one-way streets 
• Losing a key retailer 
• Opening of new shopping center 
• Not addressing petty crime 
• Failing to maintain the public realm 
• Refusing national retailers/discount department stores

Source: Streetsense, 2012 via "Revitalizing Suburban Downtown Retail Districts"

What Does Work

So then...what are the elements of suburban retail district success? The study found that seven key elements were most critical to downtown retail success. These included the following:

• The presence of a BID or Merchants Association - although notably only 12.5% included a professional, paid manager
• Ample sidewalk width - i.e. wider sidewalks that accommodate more people - the average sidewalk was 8.5 feet, but went as wide as 15 to 20 feet in some markets (e.g. Princeton and Haddonfield)
• A high "Walk Score" - a walkscore over 80 using www.walkscore.com
• A low vacancy rate - less than 20% vacancy rates (with non-retail uses taking up less than 10% of space)
• Available parking options
• High traffic counts - successful districts see an average of 10,000 - 16,000 vehicles per day. 

The Main Takeaway

If we whittle this down to a few key takeaways, what I appreciate about these categories is that they reflect what other studies have shown, that there are four key areas where business district MUST focus to maintain a competitive advantage. These include ACCESS, AMENITIES, DENSITY OF RETAIL OFFERINGS and DISTRICT MANAGEMENT, which over and over again emerge as the most critical elements necessary for a successful downtown environment. 

• ACCESS measured by traffic counts and available parking. 
• AMENITIES measured by "Walk Score" which tell you how comfortable people are walking in the district. This includes the physical environment, which I define as anything "outside of the store", as well as how clean and safe the environment feels to the pedestrian. 
• DENSITY OF RETAIL OFFERINGS measured in part by "Walk Score" AND by a low vacancy rate. I would argue that a town with a great Walk Score is a place with few missing teeth or gaps in the downtown environment. And finally...
• DISTRICT MANAGEMENT. Whether you are a BID or a Main Street Program of a Merchants Association, a downtown steward is critical to manage, market and maintain a successful commercial district. 

So...are your commercial district revitalization efforts focused on addressed these four key issues? 

Round Up: Low Cost, High Impact Tools to Address Common Issues

You don't need a big budget to make a noticeable impact in your commercial district. Here are a few tools that are easy and inexpensive to buy/download/DIY that help to address common problems.

The problem: There's a vacant storefront or lot that has become an eyesore OR You want to solicit community input for a new development, or retail attraction program, but aren't sure how.

The solution: Neighborland's "I want _ in my neighborhood" stickers, or templates for mobile whiteboards to collect input in public space. Buy the stickers from their website ($0.35/each) and team up with the owner of a vacant site. It will draw attention to the space (a plus for the owner) and give you/potential retailers a sense of what people in the neighborhood want.

The problem: You have so many great attractions and amenities in your district, but not everyone knows about them, or how to get from one to the next.

The solution: Walk Your City's Sign Builder lets you design your own wayfinding system to make your community more walkable, and help visitors get from place to place. Using their online system - you design it, they print it, you install it.

The problem: You have empty tree pits, a vacant lot, or other spaces that could use a little greening.

The solution:Guerrilla Gardening.org shows you where to buy and how to make your own seed bombs to green your district or beautify vacant sites.

The problem: You've got some underutilized spaces that could be great - if only people had a reason to be in them.

The solution: Red Swing Project hangs swings in public spaces to "inspire playfulness" around the world. Download the free how-to manual on the website to make your own swing.

The problem: You want to do so many fun projects and you don't know where to start.

The solution: Betterblock.org has information on projects that communities are doing all over the country - from temporary bike lanes to pop-up stores, as well as a series of questions to help focus your efforts when planning how you are going to make a better block.

Author Kristen Wilke is a Project Manager at Larisa Ortiz Associates.

Save Time and Resources. Start by going after the RIGHT retailers.

Not quite the kind of retail that
attracts young and trendy customers.

Devising a retail attraction strategy is a bit like threading a needle. Getting the thread through the needle requires a keen eye for details  or you will miss your mark entirely - and end up a bit frustrated to boot! In this post we make the case that diagnosis, analysis and market data are critical to ensuring you spend time chasing the right tenants, not the wrong ones. But knowing what kind of tenants to pursue is just one piece of the puzzle for commercial district managers, the other is getting buy-in from local stakeholders, including BID Board members, property owners and brokers, that your recommendations are sound and market-based. Having the right data and presenting it well is part of what it means to have an effective retail attraction strategy. Basically, when you know what kind of district you are, or can be, and you have the facts to back you up, you can be much more successful in selling your vision and attracting new retailers.

But getting to that point first requires answering a few questions. In our work, we typically begin our market research by answering the following...

1. Know what retail categories you can support and would make a good addition to your district. At its most basic, this involves looking at your market and retail leakage data and talking to your existing retailers. A more sophisticated analysis would involve focus groups and maybe even customer surveys. Surveys are useful when you have a lot of non-local resident customers (mostly because Census Data won't tell you much about their consumer preferences).

2. Know what price point is right for your market. Are you a high-end or value-oriented district? Missing the mark on price point can be the death knell for a local business. For example, we are working in one community that needs an electronics store - and a few years ago they got one. But it was a little too high-end for the local community and the store owner did not do much to change the merchandise mix and price point to reflect his customer base. Within a year, the store was closed and the owner in debt. Now, understandably, other electronic stores are hesitant about the market. This is the worst possible scenario, because while the market CAN support the right retailer they will all be hesitant because of the failure of one retailer who shouldn't have been there to begin with.

3. Know your district's "lifestyle segment". In the retail industry, retailers are categorized by "lifestyle". While the industry terms vary slightly depending on who you ask, generally lifestyle falls into three fairly self-explanatory categories, "conservative", "contemporary" or "trendy". Take a moment and think about the retailers you know and love. Where do they fall on the spectrum? Conservative retailers will sell you the basics, won't try to rock the boat with far out advertising or styles that will change drastically from season to season. People from many walks of life and many backgrounds may shop at this kind of retailer. On the other hand, contemporary retailers try to keep on trend, but within reason. Think Macy's or Banana Republic. Trendy retailers are a bit more avante-guarde and appeal to a smaller segment of the population. Think Brooklyn Industries or American Apparel. They typically need a larger trade area to survive, because they are pulling fewer customers from the general population and therefore need to attract people from a larger geographic area.

4. Now combine price point and lifestyle.... With this information in hand, you can begin asking similar questions of your target customer. What kind of price point are they comfortable with (this will likely correlate with their income). Do they tend to shop at conservative, contemporary or trendy stores? In answering this question be sure you have an adequate cross section of respondents...if you are only talking to long-time residents and not new arrivals, for instance, your findings may be skewed. Psychographic data can also be helpful in illuminating these subtle distinctions. Our firm uses ESRI Tapestry Segmentation. (For more ESRI Tapestry Segmentation, go here.)

To communicate how all of these data points overlap, we created a proprietary matrix called the LOA Strategic Positioning Matrix (TM). This deceptively simple chart has evolved slowly over time and is based partially on the work of veteran retail consultant John C. Williams ("Getting Retail Right"), the author of some excellent books on retail that are must reads for practitioners in the field. In any case, in the past we often struggled with communicating succinctly how market data and retail opportunities overlapped until we developed this tool. Now, the more we use this the more it has become one of the most useful tools in our arsenal! In any case, by taking William's framework for retail to another level,  we have been able to more effectively describe a district and its customers to stakeholders, property owners, brokers, etc for the purposes of finding the most viable tenants.

In the next few images, I will share with you how we use this tool with our clients to help them refine their retail attraction efforts so that they target only those tenants that will help round out and improve overall retail mix. This strategy helps save communities from chasing tenants who are the wrong fit and conserves valuable human and capital resources.

LOA Strategic Positioning Matrix
The level of detail encapsulated in the LOA Matrix ensures that the retail attraction strategies we offer are extremely customized and reflective of the unique conditions of any given neighborhood. We've also found that the matrix can be very useful in dealing with key local stakeholders. Stakeholders can sometimes misjudge their district (surprise, surprise!). For example, they may think that the district is in a position to attract a much higher-end retailer than the market can truly support. This tool can help you quickly manage expectations and keep everyone on the same page as retail recruitment begins in earnest.

Here are of our recent projects that demonstrate how we use this tool.

Steinway Street, Astoria, Queens: Tenant-Customer Mismatch
Our analysis revealed the need to bring tenant mix in line with a rapidly changing demographic. Steinway Street merchants may have been the right mix for the neighborhood in the 1990's, but today the tenant mix is somewhat outdated. Younger, mobile professionals are moving in - and are spending their dollars elsewhere. Addressing these issues and meeting the needs of this growing population will be critical to ensuring that Steinway Street businesses are effective and successful. So how did we communicate this to stakeholders?

Diagram 1: Steinway Street - Existing Tenant Mix Analysis
We first mapped retailers according to two criteria, price point and lifestyle. The vertical axis maps Price Point, while the horizontal axis maps Lifestyle.  Every existing and potential tenant can be mapped on the Matrix. For Steinway, an extremely long corridor with a number of divergent identities, we did a block by block analysis to discern significant differences between blocks. In the Matrix below, each color blob represents a block along the street. As you can see, some blocks offer a mix that is solidly contemporary and mid-priced., including the strongest block on the street that includes a number of national popular priced chains such as The Gap, Express and Victoria's Secret. Other blocks are much more varied in offerings, lacking a clear identity for shoppers. For the most part, the offerings on the street are low to moderate in price and decidedly traditional and contemporary.

Diagram 2: Steinway Street - Residential Psychographic Analysis...a Mismatch was Obvious

We then analyzed the district's psychographic data and found that 95% of the market fell into two categories, "trendsetters" and "urban melting pot". ESRI defines each of these as follows: Trendsetters are young, diverse and mobile. They are spenders. Fashion-conscious, they shop at stores like Banana Republic, Gap, Nordstrom and Macy’s. They buy organic food, exercise regularly and own the latest electronics. Urban Melting Pot neighborhoods are ethnically diverse, made up of over 50% foreign-born residents. Fashion conscious, yet cost conscious, Urban Melting Pot residents love to shop. Macy’s is a favorite but they also shop at other upscale retailers, as well as warehouse/club stores, especially for clothes and jewelry.

When we mapped these lifestyle segments, taking into account the median income of each segment and their various characteristics, what jumped out at us immediately was the significant mismatch between the merchandise mix and the residential market. This data confirmed what many stakeholders - and a consumer survey - had told us, that Steinway Street was inadequately serving the local market. Not only was the tenant mix stale and in need of fresh retail offerings, but the current mix was actually undermining the success of street. In seeking new retailers, we clearly outlined a strategy for our client that included a focus on retailers whose price point was moderate (not cheap) and offerings that were a mix of contemporary and trendy (not conservative). As part of our exercise, we also scanned the local market and used our own growing list of New York based regional businesses to suggest over a dozen retailers that fit this profile and were located in similar urban markets. Moving forward, the low vacancy on the street will require significant partnership with property owners to help them understand the importance of retail mix and to ensure that they fill spaces with appropriate retailers as vacancies come up.

Grand Street, Williamsburg, Brooklyn: A Tale of Two Customers
Grand Street is a very different animal. What we found after mapping the residents in the community is that there are two kinds of customers with very different needs and expectations. The first is a low-income resident who resides in public housing. The second is a young artist or professional - again back to that "trendsetter" lifestyle segment. These two customers have some overlapping needs but not not many, making it challenging for retailers to meet this set of divergent expectations. Our stakeholder interviews also bore this out. Some retailers reported struggling to meet the needs of both kinds of customers and were nervous about cultivating a higher end look or merchandise offering for fear of losing their core customer base.

Another interesting element to this analysis was spatial. When we looked at a map of the district, it was clear that one end of the street met the "high rise renter" needs, while the other end of the street meets the "trendsetter" needs. Of course, our retail recommendations included a block by block strategy that recognized the distinct differences in these customers and the desire of certain retailers to locate on certain blocks on the street.

We are excited to share this with our followers and would love feedback and thoughts! This tool is very much a work in progress - but we hope you enjoy the thinking behind it!!

Retail Recruitment 101: Tips for Identifying Potential Tenants

More and more communities and cities are taking proactive steps to attract retail. They conduct market data, develop attractive marketing material…and then what?  Too often, that material sits on a shelf. Or it gets mailed to a list of retailers without much response. Unfortunately, the mailbox becomes a veritable black hole where many organizations throw scarce marketing dollars.

While marketing material can be useful, retail attraction is ultimately a relationship-driven industry. And it’s one of the reasons why it can be so hard to gain initial traction with retail recruitment efforts. Cold calling retailers (or with national retailers - their tenant representatives), may not yield success at first because you are starting from scratch. You have no track record. Consider this - successful brokers take years to develop relationships with retailers by making it their full time job. Unless you are prepared to do the same – and few organizations have the resources to do so –consider a different approach. Actively enroll  partners in your efforts to find suitable retailers for your community.

What does “active enrollment” look like? One strategy is to develop a Retail Attraction Task Force and engage members in proactive prospecting. On a monthly basis, ask them to bring potential prospects to the group for consideration and evaluation. Before setting them about their task, below are some tips for effectively combing the local market for tenant leads. These strategies combine a mix of formal and informal efforts. Here are just few options:

Keep up with the News

·            Keep up with the retail industry trade publications, including Retail Traffic, Shopping Centers Today, your local business newspaper, etc. that cover retailers in expansion mode. Local newspapers may also include stories on successful retailers.

Network

·               Use your broker network. Commercial brokers have knowledge of retail trends and relationships with tenants looking to expand or relocate.

·               Go to industry networking events; consider joining the Real Estate Board of New York or the International Council of Shopping Centers.

·               Shop Business Plan competitions. The winners of these competitions are well prepared and eager to start businesses.

·               Reach out to other BIDs, merchant associations or CDCs with similar demographics and ask them who about retailers in their district who might be poised for expansion.

·               Comb the databases. Many commercial brokerage firms maintain subscriptions to retail databases, including Plain Vanilla Shell, Crittenden Online, Tenant Search and InfoUSA that provide information about retailers and their expansion plans. Beware however, if you choose to do this yourself. This strategy involves expense (most of these require monthly or annual subscriptions) that will give you long lists of retailers that you will need to investigate. Many will be national chains and cold calling or mailing will not yield much response without significant follow up efforts.

Eat and Shop (this is the best part!)

·               Identify similar districts and visit them on a regular basis to identify potential tenants.

·               As you shop and dine in other neighborhoods, make a point of asking to speak to the owner and congratulating them on their business. Use this as an opportunity to build relationships with business owners that might be a good fit on your district. Remember, successful business owners are often looking to expand. This is a great opportunity to get your community on their radar.

·               Get referrals from merchants about their competitors. Existing businesses are often a wonderfully underutilized source of leads. Many business owners know other business owners who are interested in expansion.

·               Look at existing businesses in neighboring district. Sometimes existing tenants need to expand but cannot do so in their current location. Helping them identify a second location in your district is a way to help these small business expand. Sometimes communities fear that this will be perceived as poaching. The fact is, if a retailer is doing well in one location, they will not close that store. Instead, they are likely looking for opportunities to grow their market by opening a second or even third location. Also, keep in mind that a retailer looking to open a third location is a stronger option than a retailer figuring out the logistics for the first time of managing a second location.

Advertise

·           Craigslist has emerged as one of the more powerful tools in retail recruitment, especially among smaller entrepreneurs seeking retail space. Consider place a Craigslist ad for your community. Offer a few examples of spaces available and a few bullet points about the strength of the market, and then tell interested parties to contact your organization to set up a tour.  

·          Market your services as a clearinghouse for pre-qualified leads to brokers and property owners.

·           Sponsor a ‘Storefront Stroll’ – coordinate with your property owners and brokers and arrange for a day when multiple vacant storefronts will be available for viewing within your district.

Get Creative! Don’t be limited by this list. Every conversation and interaction with your networks is an opportunity to grow your prospect list.

Remember, prospecting can be fun. Who doesn’t like to shop and dine out? Just be sure to use these opportunities to find prospects and develop relationships with new business owners.