Photo by NCinDC on Flickr.
According to industry experts, retail is rapidly evolving into little more than an amenity to enhance the value of housing and office spaces above.
The old retail model of traveling to a place simply to acquire goods is dying, thanks in large part to the Internet, they said at a panel on retail during ULI’s April 17 Real Estate Trends Conference. Today’s successful retail destinations are much more about entertainment experiences than shopping.
Developers want to attract younger and more affluent residents to mixed-use developments, but the kind of retail that these residents crave is very different from the retail that makes lenders want to finance a new building.
On the panel, moderated by Janis Schiff of Holland & Knight, mixed-use developer Grant Ehat of JBG/Rosenfeld talked at length about the decline of enclosed malls. The only mall to open in the US since 2006 is City Creek in Salt Lake City, which is adjacent to the Mormon Tabernacle and is heavily subsidized by the LDS church.
Tysons Corner is the only “super fortress” mall in the DC area that is viable for the long term, Ehat argued. In his view, even Montgomery Mall may not survive for another generation.
50% of the space at top-end retail destinations like Miami’s Lincoln Road Mall is food oriented, said Ehat. Architect David Schwarz added that consumers are basically lazy, and that the most successful developments are the ones that contain the greatest number of attractive uses in the most convenient and concentrated places.
The economics of retail is shifting. According to Placemaker Michael Ewing, of Williams Jackson Ewing, retailers now rely on the “clicks and bricks” model, with their physical stores serving as venues for customers to see and learn about products that they later purchase online. Ewing said that people want to feel younger and more affluent than they really are, calling this “the psychology of aspiration.”
From the developer’s perspective, Ehat reported that he no longer even considers retail as part of the bottom line. Instead, in the context of mixed-use developments, the retail, dining, and entertainment offerings on the ground floor drive the image of the overall project and, hopefully, improves the financial performance of the apartments, condos, or office suites on the upper levels.
A final obstacle to retail developments is the balance between financiers and customers. Lenders still love “national credit tenants” (the big chains), the panelists agreed, but the younger and more affluent are not interested in such stores. Those are the shoppers and residents that developers want to attract, but they have little interest in living near the stores that lenders prefer.
Conversely, the independent retailers and restaurants that most appeal to target markets for new apartments often struggle to secure financing. For developments such as the 6 Walmarts planned for the District, the panelists concluded that this tension will be quite acute.