November 13, 2015
The real estate industry is constantly changing as tastes and habits of people change. Today, many people are migrating to livable, walkable communities where they can enjoy easier access to daily routine activities such as visiting a gym, coffee shop or grocery store, and the real estate industry is taking note and following suit. Retailers have also noticed this trend and are drawn into these new communities because of the growing sense of dynamism and potential to develop a new customer base. Business leaders understand what these new development patterns mean and, as demand increases for this type of living, cities and communities that can adapt to take advantage of the trend are positioned for success in the future.
Understanding the dynamics of this suburban transition, and appreciating how it is impacting businesses and community members, begins with an exploration of the forces that are drawing people into these new environments, and a review of the ways in which retailers and developers are responding to this trend.
What began as an influx of residents back to the urban environments and dense mixed-use neighborhoods has evolved into a more general development trend, impacting design strategies in suburbs and small towns. This is not an entirely new phenomenon–growing numbers of people have been looking to relocate to these new livable/walkable environments for some time now, and the trend truly took off in earnest with the mortgage crisis in 2008. To some extent, these new lifestyle priorities reflect a generational shift, with the influential and much-discussed millennials leading the way. This demographic appreciates options and prizes the flexibility and convenience of a lifestyle that is not tied to a car. For large numbers of millennials, the allure of a built environment that offers convenience and choices, such as the option to walk or bike to work, is enormously appealing.
While this is, at its core, a trend driven by social and demographic factors, there is little doubt that the mortgage crisis represented some kind of tipping point, helping to transform a nascent preference into a meaningful trend. It is not a coincidence that multifamily housing has been one of the fastest growing products in the industry since the height of that crisis.
Retail follows both residential and commercial footsteps. When residential growth in the suburbs and exurban areas slowed to a halt and then picked back up in cities, a pattern was established.
As the social and economic forces behind this move back downtown were better understood, the density and walkability of mixed-use developments became prized both inside and outside of major cities. Developers have responded by attempting to add density and by taking advantage of mixed-use opportunities and targeting transit-oriented projects in locations well served by public transit. To make livable/walkable mixed-use communities a reality, developers are working with smaller footprints and making design and development adjustments that range from scaled down store sizes to creative solutions for parking and logistics.
In Phoenixville, an old industrial town just west of Philadelphia, a new mixed-use project, Phoenix Village, typifies the kind of dense, mixed-use project that is growing in popularity. Phoenix Village just opened in the center of town with 20,000 sq. ft. of retail space, 275 residential units and an office component. Phoenixville is blessed with a location within the region that has made this type of transition possible: close proximity to the local highway network, a solid employment base of pharmaceutical campuses and other white collar offices nearby, and good “bones” of an industrial town that once existed. The developers of Phoenix Village were able to tap into this network to create a place that people wanted to be, giving the population access to nearby jobs that remain tied to the region at large.
On the retail side, local and regional retailers have been fairly quick to respond to these changes. National brands have moved a little slower and shown more caution. To some extent, local and regional chains have an advantage and an opportunity here: as part of the communities they serve (and frequently unburdened by strict formulae and a standardized business models with specific market requirements and metrics), they not only have their ear to the ground and can see what’s going on, they have the flexibility to move quickly to become a part of it.
Challenges and adaptation
Zoning is a persistent issue in many of these new denser mixed-use developments. From height limits to parking requirements, zoning restrictions can be problematic. Even in a city like Philadelphia, for example, with its strong regional rail system, zoning has inhibited a number of additional projects from moving forward.
Retailers and developers alike are being more flexible with parking standards, as they recognize that not all customers are arriving by car and to overbuild parking would increase a project’s price tag. Additionally, with density comes economies of scale; thus, developers are pushing communities to allow denser development to make these transformational projects more viable.
Depending on the project, retailers may need to adapt to logistical or operational constraints. But even some of the biggest brands (both literally and figuratively) have showed a willingness to experiment and evolve, with smaller store sizes, multi-level concepts, and creative signage and branding. Target Express is a classic example of a big store rolling out a smaller format concept to take advantage of size constrained urban opportunities. While many are making an effort, it is clear that some are further along in the process than others.
The growing popularity of dense, more activated mixed-use environments is not competition for urban counterparts so much as a complement. Both downtowns and the suburban communities that follow this retail development model are becoming more vibrant and dynamic as a result. In a sense, retail development is becoming more “neighborhood-centric.” The result is that people have more options than ever about where and how they want to live, and can reliably find new places where they can live, work and play.
All indications are that this trend is likely to continue. In cities like Denver, Phoenix and Salt Lake City–which all have new light rails that are exceeding their ridership projections–demand for transit is rising, and these dense, mixed-use community-style projects seem certain to follow. The bottom line is that the more density you have in place, the more viable and sustainable these developments and communities become–and this self-reinforcing dynamic will only pick up more momentum in the months and years ahead.