REAL ESTATE

Three tips for retailers entering nontraditional spaces

BY Richard Broder

As vertical mixed-use developments flourish and towns and cities pursue redevelopment as a way to revitalize their civic centers, retailers find themselves presented with abundant opportunities to seek expansion in “nontraditional” urban spaces. First-floor retail beneath residential or office space can be an ideal fit for urban mixed-use projects.

But the development calculus changes when merging retail with office, residential, or hospitality.

On a macro level, the big questions with respect to retailer location remain the same whether you are dealing with a suburban strip center or a ground-floor office building space: It’s all about geography and demand. Retail positioning depends on whether the retailer (and the developer) believes there is an underserved market for their product nearby.

For the developer, the right retailers can be a strong selling point for the project, giving office and residential tenants convenient shopping, dining, and on-site amenities. The retail mix helps to make the downtown environment more engaging and contributes to that all-important energy and activation that distinguishes successful mixed-use centers.

The benefits for the retailer begin with visibility and foot traffic. Having a “captive” population upstairs or next door is a tremendous built-in advantage. It’s hard to beat the marketing benefit of having a large group of people walking past your windows every day or coming down hungry to your restaurant. The density of an office space is much higher on a per-sq.-ft. basis than multifamily, making ground-floor retail in office buildings a particularly advantageous and coveted position for retailers.

The top three things that retailers and developers need to keep in mind when evaluating retail fit in nontraditional urban space are:

Fit and functionality. From an operations point of view, you need to think carefully about how to accommodate retail logistics. There are almost always workable solutions that can be made for practical considerations, such as a retailer’s delivery requirements or hours of operation. These fundamental factors can make a big difference — not only when it comes to coexisting with an office tenant, but also in achieving that elusive mixed-use synergy. The notion of fit also extends beyond practicalities to more nuanced considerations of brand and “tone.” A high-end law firm might be an awkward pairing with a Disney Store, for example. A similar thought process should apply to a retailer’s fit within the surrounding market dynamics and local retail mix.

Strike a balance. In a general sense, owners and developers will need to be somewhat more flexible, responsive and accommodating to specific retailer requests. For example, locational choices tend to be more specific and impactful for retailers than an office tenant (who isn’t likely to be as concerned about what floor they are on or what side of the building they are facing). Anytime you have two or more different uses coexisting in the same building, you need to be both thoughtful and strategic about balancing the different needs of each component. It’s also important to achieve a balance within the larger project and the overall marketplace. Selecting the right retail tenant is a process that requires not only asking, “Is this what people want?, but also “Is this good for the building?” and “Is this a good fit for the surrounding neighborhood/overall project?” The answers to those questions can be conflicting or contradictory, which means that the best deal on paper might not always necessarily be the best decision for the long-term success of the project.

Respect civic context. The need to make smart decisions can be an especially urgent priority in cities like Detroit, where a comprehensive civic renaissance is underway. In essence, downtown Detroit is being “rebuilt,” virtually from scratch. In circumstances like that, owners, developers and leasing professionals have both an opportunity and an obligation to get it right–and that is a responsibility that should not be taken lightly. In fully evolved urban ecosystems like New York or Chicago, that dense mix of uses has evolved organically over a long period of time. In places like Detroit, there is a need to be really thoughtful and strategic. Being conscious of context and consequences in an urban landscape that is comparatively “young” is critical in order to tackle gaps that need to be (re)filled.

Richard Broder is CEO of Broder & Sachse Real Estate, a Birmingham, Michigan-based real estate development company known for bringing influential commercial and residential projects to life. Broder can be reached [email protected].

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