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| Embrace the Past |
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| Opportunities Abound in Overlooked Urban Areas |
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| By Jim Farrell |
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or several years the new frontier for retail growth has been exurban areas that lie just beyond established suburban communities and push the boundaries of growing metropolitan markets.
Today, exurban opportunities are drying up because of the dwindling availability of new "greenfield" lands and the downturn in the suburban housing market. Savvy developers are now finding overlooked opportunities in older urban neighborhoods that often offer a wish-list of redevelopment goodies: high density, excellent demographics, strong daytime population, growing affluence, cultural amenities, and in most cases, a resounding need for smart growth.
Identifying Opportunities
Development has largely hop-scotched over a growing population ring where demographics are changing and retail real estate is failing to keep pace. In communities such as Prince George's County, Maryland, a bustling suburb of Washington DC, approximately 60% of all retail assets are 40 years or older. The opportunities are endless as long as developers know how to identify which centers are best positioned for revitalization.
Access to public transportation is one critical component. In large urban areas, public transportation is vital to connecting people with jobs, shopping and entertainment. The recent increase in gas prices and continued traffic woes in major metropolitan areas only strengthen the importance of public transit. Communities that have convenient access are more likely to attract higher income residents and become an entertainment and retail destination for the broader region.
Another good indicator of a center's redevelopment potential whether it enjoyed substantial success early in its history. These centers are the most likely to have strong fundamentals such as good visibility and central locations. There is also likely to be good infrastructure and road networks that surround them.
Clarendon in Arlington, Virginia is an excellent example of an area that seven years ago proved ripe for revitalization. Located just a few miles from downtown Washington, DC, Clarendon was a regional destination filled with great department stores in the 1940s and 50s. It fell into disrepair in the subsequent decades. By the 1990s, it began to enjoy a renaissance with successful local restaurants, bars and new residential construction. There was also a healthy daytime office population. Clarendon also benefits from being located on a popular line of Washington, DC's mass transit system.
The combination of easy access to public transportation, growing daytime and residential density, along with successful local restaurants made it ideal for redevelopment. In addition to a high-end grocery store, the former Sears department store was transformed into a lifestyle center environment featuring Pottery Barn, Apple Retail Store, Williams-Sonoma, Ann Taylor Loft, Crate & Barrel, The Cheesecake Factory and more. These national retail concepts cemented the area as a true regional destination and facilitated even greater office and residential growth.
Maximizing Returns
Developers must do more than repave parking lots and repaint the exterior if they are to create value in aging retail centers. They must examine the demographic and psychographic trends in the community and carefully reshape the merchandising mix to better reflect the community's evolving needs. There is also a need for creating more dynamic environments that feature common areas and other community uses.
The remerchandising effort must strike the right balance between local and national tenants. National tenants have broad appeal and can be a definitive sign of revitalization. However, these local communities have traditions and cultures that must be reflected—an attribute that can only be found in local and regional retail and restaurant concepts. These aging centers are often great incubators for new local retail concepts because they have an established customer base. The challenge for a developer is that these local upstarts require intense local presence—either by the developer or a hired consultant.
Redeveloping older centers also requires adaptation to modern design elements including common areas with fountains, community theaters and other aesthetics that encourage social gathering. Many old centers do a very poor job of engaging the community with anything other than retail. The success of lifestyle centers across the country shows that these design elements can be powerful draws for the community and for prospective tenants.
Cultural Consideration
Within the last decade, the cultural footprint of many major US cities has changed radically, reflecting the influence of fast-growing immigrant populations. Clustered throughout the mature suburbs of large, urban centers like New York, Chicago, Los Angeles, Miami, and Washington DC, these "New Americans" are fiercely proud of their heritage and maintain strong ties to home-grown traditions and cultural values. To adapt to this diversity, new retail, marketing and branding strategies must be created to reflect the unique spending patterns and consumer preferences of these groups.
These new communities crave a fusion of amenities that satisfy a variety of cultural demands. Food is one of the largest considerations that developers must account for in merchandising. Many of the traditional large format grocers do not adequately adjust their product mix to reflect the ethnic identity of the surrounding community. Often these communities' needs are served by smaller bodegas, but increasingly, a number of regional chains are emerging in various ethnic categories that can better serve differing populations.
Restaurants must also reflect the ethnic tastes of diverse neighborhoods. While national chains may achieve success, local restaurant concepts are critical if developers wish to maximize market penetration. Many of these local concepts achieve regional reputations and a critical mass of them in one center or area can become a true destination for other communities seeking a new dining "experience." Moreover, these areas are defined by their unique cultures and preserving those traditions is what gives them a sense of place and creates a unique atmosphere that draws in others. Where there were once compelling Italian and Chinese neighborhoods in major cities, there are now Salvadoran, Peruvian and Mexican neighborhoods that offer interesting and authentic new cuisines that appeal to diners of all ethnicities and cultures.
Other categories such as apparel, beauty and service retail must also be adjusted for culturally diverse neighborhoods. Some categories, such as electronics, are universally appealing. Additional uses including medical and educational can be particularly appealing to these neighborhoods because of the language barriers that may prevent integration into these institutions in nearby areas.
Rethinking Assumptions
The major impediment to realizing the opportunities in older neighborhoods are the institutional pressures from banks and investors who feel more comfortable with centers that house national brands and serve traditional demographics. Like Clarendon, there are now many successful examples of revitalization that should begin changing these preconceived notions of what makes retail centers successful. While national brands can serve certain needs of a community, local concepts are fundament to serving all the needs of a community.
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| This side-by-side comparison of Clarendon, a neighborhood in Arlington Virginia, shows the rapid growth that has occurred over the past decade. |
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Jim Farrell
Principal, Madison Retail Group
Jim is a founding member and Principal of Madison Retail Group. He brings over 20 years of retail real estate experience including development and leasing of all types of retail properties, including mixed-use projects, urban storefronts, town centers, lifestyle centers, shopping centers, and ground-up developments. He holds a Bachelor of Arts in Economics from the University of Maryland. Jim is a member of ICSC, Ballston Partnership and the District of Columbia Building Industry Association. |
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