The commercial real estate landscape has changed dramatically during the COVID-19 pandemic, and it will likely take time for tenants, landlords and cities to adjust to the new normal. However, a pre-pandemic problem persists: landlords and urban property developers are grappling with the oversupply of ground-floor retail.
Amid the changing landscape, several strategies, both new and proven, are giving real estate companies the tools to rethink their approach to ground floor retail and not just rely on the status quo.
The abundance of commercial real estate has accelerated as lockdowns have eased, with high turnover and an industry struggling to attract customers to physical locations.
Cities, which have long relied on retail sales as their primary source of tax revenue, tend to assume that all ground floors in dense neighborhoods can or should be retail.
Some developers are exacerbating the problem by relying on the repeat-rinse tradition of hiring a broker and waiting. However, more and more owners and consultants are embracing the need for change, breaking old norms and testing new strategies, uses and looks.
Ground Floor Retail Challenges
Ground-floor retail is one of the most challenging product types in commercial real estate, and owner-developers who take business-as-usual approaches may see empty spaces for too long.
As offices and multi-family businesses expand into mid- to high-rise urban buildings, ground-floor retail space is sometimes treated as an afterthought compared to the 100,000 square feet of corporate or housing space. which they must complete.
But future office and residential tenants don’t like dark storefronts or inactivity in a building they might occupy. This places a heavy reliance on guest traffic and downstairs brand signage or programming to liven up the “first impression” of the property and help fill the upstairs lettable area.
With these challenges, developers who break their own mold, challenge standard approaches, and create innovative solutions may be more likely to succeed.
Finding new approaches to the ground floor challenge
Urban commercial property owners and developers have capitalized on new approaches and developed proven strategies to combat the struggle for ground floor ownership. Some key tips and tactics follow.
1. Pre-fit retail as ready to move in for shops and cafes
Retailers and restaurant businesses decimated by the pandemic are now resurfacing – in the pockets.
Landlords who position their properties as move-in-ready first-tier choices are renting faster than shell spaces requiring lengthy builds or more permits than strictly necessary.
2. Curate, instead of just praise
Few retail spaces should be viewed simply as one or a few stores that need to be leased. They should be treated as part of the commercial and retail district, whether it is a dense urban location or a more dispersed environment.
Landlords should work closely with their leasing advisors to develop a plan to organize appropriate retail or restaurant businesses that can thrive in the local ecosystem.
For example, an urban location on the ground floor should be considered in the context of the experience of the street and nearby stores, with ideal target customers and competitors, similar to retention in malls and malls. mixed-use developments.
3. Liven up the ground floor, lobby or exterior branding
Experienced developers know that the ground floor is the first impression for offices, housing or hotel guests on upper floors.
Developers need to answer these key questions:
- Are the shops or cafes in the basement adapted to the overall positioning of the project?
- Do they create a welcoming, flourishing energy that signals an attractive property?
- Are the architecture, interior design, signage and other elements complementary to the building’s overall rental strategy?
4) Innovate new uses, not just new tenants
As the pandemic evolves, many owners are seeing new, innovative businesses scrounge for space. These are often the most attractive potential tenants as consumers enthusiastically return to physical purchases. After careful research and due diligence, owners can capitalize on new concepts that attract buyers and visitors, benefiting the entire project.
Owners, operators and real estate consultants who want to solve their ground floor problems are re-evaluating the standard approach to leasing to break the mold and strategically fill their retail business.
Jeff Needs is Director, Real Estate Consulting, for Moss Adams.