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Four Ways Unused Retail Spaces Can Be Transformed Into Multifamily Housing
In my role as the housing practice leader, part of my job is to try and understand the future of housing and help clients plan accordingly. Considering everything happening in the world today, it is obvious that retail will look different post-COVID-19. And I believe this new look will greatly affect the housing market.
The idea of re-imagining the mall of 30 years ago and converting shopping centers into experience-based hubs is not new. However, as change brings new opportunities, I believe we need to prepare for fresh trends and concepts to evolve.
As we see it, there are four basic kinds of opportunities to revisiting conventional thinking about replacement tenants for ones that did not survive the worldwide shutdown.
The single-tenant vacancy
When a smaller store shuts down, typically the landlord will attempt to replace that tenant with a similar operation to minimize costs and downtime. Throughout the country, tenants looking for this type of space will likely be limited. And because of a growing number of vacancies, the value of the space per square foot may be greatly diminished.
Instead, perhaps we could use this empty space to access underutilized parking or loading areas. The space could also be used to insert non-retail rentable real estate that could generate significant new revenue. With the inclusion of residential rental units, there is the added benefit of creating additional daily foot traffic for the existing retail tenants, while giving residents access to amenities within walking distance.
This symbiotic relationship is particularly attractive to seniors who want to be more independent and rely less on private or public transportation.
The big-box conversion
Big box retailers like Sears and JC Penny have been vacating anchor spaces with increasing regularity for the past ten years. With several other national retailers recently filing for chapter 11 protection, this trend will continue. The traditional solution of chopping up a space to appeal to smaller tenants is taking a back seat to complete overhauled solutions that are starting to pop up throughout the country.
Dimensionally speaking, big boxes size out perfectly for structured parking, which has the dual benefit of bringing more customers closer to the stores and inserting residential units within a very small footprint.
Wrap buildings which feature apartments wrapped around a parking structure (also known as a Texas Doughnut) can take many forms as they connect to the parking structure, thus allowing for a great deal of flexibility in terms of how they can be manipulated around the existing structures and service areas to minimize construction costs and loss of surface parking.
Out parcel vacancies
Many retail centers were constructed when parking demands and zoning codes dictated significantly more parking spaces than what we might plan for today. During most of the year large portions of these spaces are not being used and could be better utilized as new pad sites or repurposed for residential development.
Wood-framed walk-up garden apartments make a perfect drop-in alternative as they are inexpensive to construct and make the best use of the existing oversupply of parking in the large sea of vacant spots. These can vary in size and shape to create several small structures or larger buildings with interior courtyards to give residents private green spaces. Placed properly on the site, pedestrian walkways can be created to freshen up and create a more dramatic entry to the existing retail.
Recently, the most popular trend anywhere has to be the pedestrian town center concept which features a mix of building types and tenants including residential, office, medical services, entertainment, outdoor space, and food venues. Although not appropriate for all climates, this more ambitious option takes longer and can be more disruptive to existing tenants. However, I would argue the positives outweigh the negatives tenfold. These specialized mixed-use spaces create a sense of place that is increasingly more popular and socially desired.
Meanwhile, main street residential concepts differ in that they are integrated vertically above an existing retail space. This ensures revenue-generating real estate without the loss of the retail space. The vertical integration also leads to an increase in pedestrian street traffic which can benefit everyone.
As the true impact of COVID-19 remains to be seen and felt, retail developers will likely need to explore out-of-the-box options to mitigate underperforming assets. Whether it’s housing or one of the other mixed-use building types, we know that existing space does not need to go unused. In fact, looking at this as an opportunity to explore new options and revenue streams may be helpful to long-term goals and success.
Read on: Protecting Tenants and Planning for the Future of Multifamily Housing