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Phelps Architecture Students Apply Design Skills to UrbanPlan
A team of senior Architecture students from Phelps ACE High School put their design skills to work recently when they participated...
All real estate asset classes are seeing seismic shifts in preferences that happen potentially once a lifetime… a cultural revolution in the office, the dismantling and reinvention of shopping/consumption, a skeptical exploration in how and where we live and a transformation of what was leisure and business travel. As a life-time learner, I find it one of the most fascinating (and scary?!) times to be in real estate, particularly retail development. While all aspects of our lives seem to be exponentially evolving (healthcare, education, driving!), how we shop is accelerating rapidly, spurred by convenience (free shipping) and big tech. I’m frequently asked, what is the future of retail and mixed-use? While one can find many holes, exceptions and nuances, I hypothesize history will look back at this period as the catalyst for a new retail format.
The retail industry has been considered overbuilt for decades. Chain retail stores grew their fleets rampantly (often to satisfy Wall Street expectations) during the early to mid 2000’s. Municipalities fell in love with the mixed-use and “town center” concepts demanding retail on every ground floor. For a time, this worked due to voracious consumers who were eating out daily, utilizing services and shopping with seemingly endless disposable income.
When the Great Recession hit, there were consolidations, store closures and fear of e-commerce. Although my phone seems permanently attached to my body, the reality is the first iPhone came out in 2007 and e-commerce was still a nascent channel during the last 10 years. Retailers began investing in technology to create an “omnichannel,” but pre-COVID 90% of sales still occurred through a brick & mortar storefront. Thus, Landlords weathered the distress by backfilling and/or re-demising existing retail square footage with expanding uses, namely entertainment, fitness and food concepts (especially fast casual and chef-driven). These concepts were believed to be “internet proof” requiring consumers to experience them in person. Pre-COVID, the physical store still had huge relevance to consumers.
With the length and depth of the current pandemic, changing consumer habits will alter how we shop going forward. Working from home, I get a box delivered almost daily with some random item I realized I needed. The convenience, particularly for everyday items, is easy, addictive and time saving. In 2021 as we emerge from homes, go back to offices, schools and traveling, we’ll likely still get our daily (or maybe weekly) packages at home and find ourselves in a drastically overbuilt retail environment. Retailers that embraced technology and alternative channels during the last decade, are winning consumers today. But their footprint is shrinking both in count of stores and square footage per store. Frankly, the retail equation has been broken for years and COVID exposed this reality. The difference (and question) from the Great Recession is who will fill the swaths of vacant space…
The densification and differentiation of product types was a frequent discussion during the last 3-5 years. However, there was often no economic incentive to eliminate productive (even minor) square footage since new capital-intensive development would need 3+ years to produce positive cash flows. With cash flows eroding, opportunity emerges… and it may look a little different this time around with a limited category of retailers and viable (or necessary) uses. This could be the first-time retail square footage decreases in a meaningful way while ground floor spaces may convert to flex or medical office, production space, art galleries or education uses. While the future looks murky, the level of entrepreneurship and creativity is as robust as ever.
As mixed use continues to dominate land planning and (re)development conversations, I hope our industry leads the way with innovative thoughts for the ground floor as well as where our retail clusters should exist. We have proven in many cities that retail does not work on every corner and in every building… and might diminish value without curation and vibrancy. For retail specifically, if the last 10 years was about technology (disruption), the next will be about the purpose of the store and consumer connection. This is as important to the retailer as the landlord. The store is no longer about a transaction, it is a place you experience a brand (food or other sensory experience). Retailers will flock to the areas where there is a thriving place… green space, great sidewalks, ease of access and safety.
As we chart a new path post-COVID, I meld the retail conversations with thoughts about what makes a great city. During the last cycle, projects across the country begin incorporating “mixed-use” into their vocabulary as well as “placemaking.” Both are expensive to build and take a long time to execute, with only a few groups doing it well. But the blurring of uses (retail, office, residential, lodging) seem like a natural evolution as individuals continue to value time – a defined and constant constraint – and what was new vocabulary feels like standards of great projects going forward. With collaboration, consensus, innovation and experimentation, I have no doubt there will be a new retail equation in the future. In this rapidly evolving environment, I am excited to be part of the conversation as opportunities and new ideas emerge.
Katie Bucklew
Vice President, Mixed-Use, AvalonBay Communities, Inc.
ULI Full Member
Chair, ULI Washington Advisory Board
Member, ULI Washington Governance Committee
Member, Urban Development/Mixed-Use Council
In ULI Washington’s new Leadership Insights column, ULI Washington will regularly feature member leader’s thoughts and insights as we adjust personally and professional to a “new normal.”
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