How popular are mixed-use developments moving forward? According to Nick Egelanian, founder of SiteWorks, it’s the most popular new development type today.
It’s apparent in most major cities, mixed use is the wave of the future. Whether it’s multifamily with retail, or a host of various uses, mixed use offers the convenience and density many retailers, residents and city planners’ desire.
Based on the views of my guests on a recent show, the mixed use development of tomorrow may look a little different.
New Trends in Retail Centers
For example several retailing trends are converging in Boston’s Assembly Row development. The center, which includes transit, apartments and office, has combined outlet-type or off-price retail with more traditional stores and dining.
Outlet or off-price retail centers have performed well in recent years. Until recently locating outlet shopping in town where it might compete with flagship stores was unthinkable. Now, as population heads back to the cities, those barriers have shifted. Customers are not driving out to the burbs for shopping. Retailers are seeking new places – in location and concept. An outlet store can expand a retailer’s coverage into additional market segments.
“Mixed-use environments are very conducive for specialty retail,” asserted Egelanian. He defined specialty retail as shopping designed for pleasure and entertainment, in contrast to commodity retailing, where the customer expects convenience and competitive pricing.
According to Egelanian commodity retailers perform better if they are nearby, not in, a mixed development. “Commodity retailing only needs to get customer in the door. Specialty retailing requires a focus, a context, and an atmosphere. A successful center is a destination: your retail mix should be tuned to create that.”
Avalon, the 85-acre mixed-use community in Alpharetta, GA, is a good example. The Main Street is reserved for entertaining specialty retailers: beautifully detailed options like restaurants, boutiques, and movies. The more practical Whole Foods and Target are located nearby where they have plenty of parking.
Today’s mixed-use center is evolving into the contemporary version of the mall.
Egelanian noted that B and C malls, hundreds of them, are at the end of their 30-year cycle. The mall was anchored with department stores, because that was where we shopped for apparel and household goods. E-commerce has changed that dynamic.
Mixed-use centers are anchored by entertainment: a movie theater, experiences like Discovery Zone, and destination restaurants. Egelanian predicts more of this convergence between outlet merchandising and entertainment retailers.
Shaking up the Mix
The next wave of development is mixed-use, says Jerry Hoffman, President & CEO of Hoffman Strategy Group. Building for single-use retail is rare since the great recession. But the future is bright for this next generation of development. Multifamily, creative office space, senior living – cities across the country are adopting the mixed-use concept to solve local challenges.
The market is demanding the incorporation of non-retail uses into formerly retail property, he added. The repurposing old malls is a great example.
What Makes a Great Location?
Retailers must pay attention to their local customer profiling.
What consumer profiles are within a given market area?
What apartment types are your customers demanding?
What kind of experience will your residents expect?
What about visitors? Consider those who will travel to your center. What attractive venues are nearby?
Will your market support a limited service hotel or a conference service hotel? Hospitality can play a role in mixed use, if there is the right kind of activity in the area.
Zoning and Mixed-Use
Mixed-use and environmentally conscious buildings are becoming the norm in development, says Ben Owenell, Managing Director at GBT Realty in Nashville, TN.
“Technology is improving rapidly and really paying off in savings. Urban infill and the live-work-play environments are where people want to be. It’s the future, and the future is here.”
All this change is a challenge for both city planners and national tenants, both accustomed to more traditional development. How are municipalities responding to the new trends?
City planners are dedicated professionals, but they need to become more flexible about where they put these things, and what goes into them. Up to 35% of these developments fail. It helps no one concerned if the traffic doesn’t come for your retail or office property. We work to educate the municipalities on what will and what won’t work in a given location.
Zoning can take some time: even if everything is by the book, it’s a six to nine month process at a minimum. It requires working with the local council, city planners and neighborhood associations. In Nashville, we have good collaboration with the city and the neighborhood organizations are very active. Keeping the communication flowing is essential.
A Complicated Animal
Kirk S. Demetrops’ firm MidCity Real Estate Partners has been an integral player in mixed-use projects. He knows firsthand the great potential – take a look at the success of Alpharetta’s Avalon. And, he can speak to the challenges as well.
Mixed-use is new for everyone, Demetrops notes, and requires a lot of conversation and compromise from all parties. Retail, often the driver of a project, can be the most difficult to work with. Retailers may be accustomed to much larger spaces and they require the most parking.
Right after downturn most municipalities were eager for any kind of development. Now, we’re experiencing more challenges with zoning and planning. Overall most communities are very open to mixed-use development, but sometimes planners will try to dictate what’s in the box. Demetrops explained how he shapes the conversation: “I understand you want 25% retail, but what you really want is a project to work.” Sometimes the neighborhoods express people’s resistance to change.
“We have to be the educators, bringing the compelling data, and provide examples from other locales,” he observed. “When we work to show them something new and dynamic, and that we know our business, then we can get to ‘Yes’. Just know it can take longer than you want to get zoning to come around. We count on a year to achieve rezoning.”
Advice for Tenants & Investors
For tenants going into mixed-use development, know how to be successful. You really need to understand what they’re creating and see if it’s going to work for your business. Will the main attractions draw your customer segments? It needs to be a good fit.
For investors, it’s critical to take care with the condo documents. They are very complicated, with so many involved parties. Take the time to make sure they’re right, even if it takes more time.
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