Reinventing Retail Strip Centers
By Richard Deaver
Let’s face it; there is a lot of uncertainty in our economy right now. Unprecedented layoffs, business closures, foreclosures and both personal and business bankruptcies have made everyone fearful of what the future holds.
But this is not news to anyone.
Commercial real estate has not been left unscathed by all the economic carnage – especially retail. On a national level, retailers closed an estimated 6,000 stores in 2008 alone with more than double that amount anticipated by the end of 2009. Locally, we’ve seen a number of storefronts go dark, both large and small. Gottschalk’s closure had the potential to severely exacerbate the situation, but since they had premium locations, there was plenty of demand to minimize the impact of adding to the vacant inventory.
The blow from jobs lost by the closure of Gottschalks was also lessened when Macy’s hired a number of former employees for the River Park store and Forever 21 should be adding soon to that number at the Fashion Fair location, but those who have not found jobs potentially can increase the number of new foreclosures and personal bankruptcies still to come. This will only add to the drop in retail sales forcing more local businesses to close, thereby causing vacancy rates to climb continuing a vicious cycle.
Clearly, there will continue to be challenges in the overall economy, which will affect commercial real estate for the foreseeable future. This said there are things commercial real estate professionals that specialize in retail can do that provide value to their clients to help reduce the number of new vacancies and even attract new tenants.
Additionally, as Fresno’s population increases, we continue to grow away from the urban core and add strip centers to serve these new neighborhoods. This growth presents opportunities for real estate investors to acquire and reinvent distressed retail properties that will also serve to help revitalize the city’s urban center.
The Challenges and Possible Solutions
Retail property owners, especially those with older, underperforming strip malls, need to look at how they can add value that brings foot traffic to these centers and generates cash flow for their tenants. These strip malls are not going away, so how can they be improved to offer a better experience for shoppers, and more importantly, create the needed sales to not only help these retailers survive, but also thrive?
There is any number of solutions and adaptive reuse options; but limited space prevents any in-depth analysis of this topic. This also should not be considered a cookie-cutter approach to fixing problems at all strip centers because market demands often dictate otherwise. You can’t fix location, so some centers will never return to their former glory as a retail center, which means they have to be repurposed for another use entirely. With this in mind, here are some things to consider:
Shopper Experience: When many of these older strip malls were built, some of the more sophisticated market analysis tools and techniques employed by today’s developers were either not available, or not utilized. This often resulted in plain and unexciting centers that may have served their purpose at the time, but now they are outdated and mostly attract marginal tenants just to keep space rented.
Center owners need to explore ways to improve these properties, but simply putting a coat of paint on a building is not the answer. We’ve all heard the term, “You can put lipstick on a pig, but it’s still a pig”.
Although many real estate professionals already may be providing similar value-added services to their clients, others can increase their importance to these owners by offering suggestions on ways to make their properties more attractive, functional and increase the likelihood of securing and KEEPING quality tenants.
To attract the right tenants, you need the right shoppers and the experience must be a primary consideration. An environment that creates a “sense of place” is critical to attracting these shoppers.
This might mean a major or minor facelift, adding or improving landscaping, and developing a new signage program. The signage program would include monument signs, storefront sign standards and even criteria on any signage a merchant may use to announce a sale or special event. Too often centers allow tenants to use poorly made signs that clutter windows and sidewalks, which eventually lead to a cheapening of that center. Again, the shopper experience is key to a center’s success. Some existing tenants may initially object to any changes in signage standards, but properly done in conjunction with other center improvements, they will see an improvement in their business.
Cities everywhere have allowed unimaginative centers to be built for years, often not being able to tell one from the other since there is so much “sameness” in their design. You pass by them every day and over time, watch their decline. For retail specialists, this just makes their job that much harder to either sell the center or find viable, long-term tenants. The ROI from a facelift will be commensurate to the effort put into it. Some will be related to the amount of money spent, but it also is dependent on the design and execution of an overall strategy including how the center is re-positioned and marketed. While certainly critical to a successful project, paint alone, in my opinion, only covers the sins of poor design in most cases.
Regarding this “sameness”, one of my pet peeves is how some new center façades continue to follow this pattern – basic, mostly bland and with little or no variation in the individual storefronts and with the all-too-common mansard-style roof and covered walkway – a sure recipe for gradual, but eventual obsolescence. For a project to remain viable long-term, developers need to take a cue from successful lifestyle centers, vibrant downtown shopping districts or even quaint villages to see how each storefront offers some type of architecture that defines it. This variation adds to the richness of a buildings façade and creates interest that enhances the shopper’s experience.
People will also spend more time in this type of center versus one that may offer easy access to good and services they may need, but does not encourage them to explore other shopping and dining options.
The predominant characteristic should be that of an urban village center. Outdoor eating areas, plazas, pedestrian walkways and even creation of new paseos will give the center a small-town urban look with pedestrian-scale, walkable cluster of stores offering goods and services designed to meet the daily needs or the surrounding neighborhood. Consideration should also be given to the redesign of parking areas. The existing automobile-oriented commercial strip center-look common in suburban areas should be reconfigured with a new focus on pedestrian uses. When possible, parking should be located away from street views. If space allows, new buildings can be located at the front of the center that also serves to screen the parking areas.
Functional Uses: Regardless of how well positioned a retail center may be when first built, new retail concepts, economic cycles, changing demographics, and the gradual obsolescence of all commercial structures make repositioning or redevelopment inevitable. Some centers may have simply exhausted their original functional use. Those with the ubiquitous supermarket anchor cannot attract any of the chains due, in part, to the space requirements of today’s modern grocery chains, the configuration, and the center’s location, age and appearance. Neighborhood demographics can also dictate a more ethnic-oriented grocery store fill these spaces, but even this need will not fill all of these vacant stores. Some of these larger spaces have been re-purposed for other uses and secured tenants, while many centers cannot fill them. I contend that this is due to lack of imagination.
Admittedly, some are more difficult to re-purpose than others, but many of these larger spaces do offer owners, potential investors and industry professionals a great opportunity to turnaround a center that may have been long-considered outdated.
The key is to think outside the box (pun intended), or may be it should be think, “Inside the Box”.
Depending on the layout of the overall center, a large space can be redesigned into smaller storefronts. They can also be converted into a food court that allows small restaurant entrepreneurs an opportunity to locate their shop in a space that is designed to bring people in rather than be isolated in just an inline or end-cap space. Food Courts are not new to large malls and small strip centers can certainly adopt some of their better ideas to improve foot traffic. A new, prominent entrance can be built and skylights can be installed over the central dining area while indoor landscaping can create an atmosphere that completely reinvents the center.
Other merchants will also benefit since diners can also become shoppers. It all comes down to how well the overall center is redesigned, marketed and managed. There are numerous other potential uses to consider, but the main thing for real estate professionals is to look at ways to bring value to the center owner that make these spaces easier to fill with quality tenants.
The improvements cannot be isolated to just this large, empty space. The entire center must be updated to make it attractive and bring shoppers back and great design is absolutely critical for a project to be successful. You cannot use the logic from the movie, Field of Dreams, “If you build it he (they) will come” and hope shoppers will return. It simply will not happen when other shopping options exist.
Mixed-Uses: This term is often overused, or incorrectly applied to a project. Mixed-use for some may be a combination of retail and commercial office space. Strip malls often include a few office tenants such as those related to insurance or residential real estate. This is certainly creating a different tenant mix, but a true mixed-use property is one that usually includes residential.
You’re probably thinking, “How can you incorporate residential units into an existing strip mall”?
If the center is located on a site that can support high density housing and can be reconfigured to add a residential component, then this option is certainly worth exploring. There are new projects on the drawing board to build centers like this, but there is also a great opportunity to reinvent an existing center and breathe new life into it. I know of a number of local strip centers that are prime candidates for this type of use with locations that can support them.
City planners are also much more flexible now with projects that incorporate different tenant-types into the overall mix, including residential housing.
Some centers have adequate land to build new residential structures alongside the retail, while others may require that you go up rather than out. Either way, you introduce a vibe into the center by having people around 24/7. This can also lead to merchants staying open longer to serve the residents needs or even attract others that recognize this opportunity.
Yes it requires an investment and yes, it also takes more effort than building a new center or doing a minor facelift to a plain-Jane, run-of-the-mill strip center, but the return can also be more substantial and long-term. This can also reinvigorate a neighborhood and potentially encourage other improvements. Like I said, these strip malls aren’t going anywhere and the homes and other businesses in the surrounding area will certainly follow suit over time.
Live-Work: An existing strip center can also be reconfigured as a live-work complex. This would require adding a second or even a third floor to the existing structures, but given the right project in the right location, this could also be a very attractive option for an otherwise tired strip center. The target market would be young entrepreneurs that want to operate a business, be it a retail store, restaurant or an office for say an architect or attorney. Potential uses are limited only to one’s imagination.
If this same center also has an empty former grocery store space, it could be repurposed as a suite of executive offices for business people who do not have the need for a regular office location, but require desk space, telephones, Internet, fax services and use of a conference room to meet with clients. Done correctly and in the right location, this can add tremendous value to an existing strip center.
Green: An overused term that is often simply a marketing gimmick – especially with some consumer products – but used appropriately, it can add value to a project. Green buildings and building materials are becoming much more commonplace and if they qualify for LEED (Leadership in Energy and Environmental Design) certification, this can be incorporated into the marketing of a center. This designation in and of itself will not attract tenants or shoppers, but often green design utilizes a more modern-looking architecture that showcases the environmental and sustainable aspects in an attractive manner even though any building and architectural style can benefit through their application.
Medical: Those who specialize in medical offices know the demand in this sector will continue. Many medical professionals have joined together under one roof – some with different specialties – to provide better services to their patients and also spread the costs of operating an office. Properly located, an older strip center may represent a prime location for either a medical group, or having independent doctors leasing space next to other service providers that may offer complementary services or products. Think mobility services and products or other related merchants. A vacant grocery storefront could be reinvented as an urgent care facility, possibly operated by one of the local hospitals.
Artists Spaces: Just like any other strip center redevelopment options being described here, being strategically located is the key to creating a successful project with new uses. It’s pretty obvious that artist’s spaces need to be located where there is a critical mass of budding artists needing space to work from or at least easily accessible from various parts of the city. Some artists may have the need and wherewithal to lease their own storefront, while others may just lease a small work area in the same storefront as others. Some of these spaces could be set up as galleries to showcase their work and the entire center can be redesigned as an arts center that has special events to support the arts community. Even performing arts can be incorporated into such a center including dance studios and theater groups or even musical studio spaces for local bands to practice. That large, unused and hard to lease grocery storefront could be converted into a multi-purpose space for art shows, recitals and concerts. And don’t forget about other merchants and dining options needed to support this clientele.
Getting it right
The ideas mentioned here are just a few of the potential uses for turning around a dead or dying strip center. Some describe a consolidation of service-types, but even this grouping of merchants, service-providers or artists require ancillary services such as casual dining or coffee shops. You can also vary the tenant mix by bringing in tenants that are not reliant on retail sales to be successful, but will serve to help generate foot traffic for other retailers. The proper mix is essential and as I’ve already stated, great design, marketing and center re-positioning is crucial to a successful project. If an owner just tries to target groups such as those I’ve described without taking the redesign step, they are doomed to fail because they have left out one of the most important points; shopper (patient, arts patron, etc.) experience. People like to shop and play (and live) where they are comfortable, safe and where they feel a sense of place.
Outdoor spaces need to be a design consideration, as well. Many casual dining and fast food restaurants that locate in strip centers want to offer their customers outdoor seating, but often space on the sidewalk or other center or zoning restrictions prevent this. All can be overcome with the right design and operating strategy. Attention on outdoor spaces should not be limited to just dining options, either. There needs to be thought put into how to incorporate outdoor spaces that enhance the shopping experience, which include common areas, outdoor seating, landscaping, water features and lighting. Proper lighting should not be limited to safety and security purposes. It should also focus on illuminating the center and landscaping in a way that fits the overall design scheme and engages the senses. This same attention needs to be placed on the signage program.
To shed the cookie-cutter past in order to create a destination-oriented urban village center, owners, commercial real estate professionals and others involved in the resurrection of a strip shopping center must work together. Developing a strategy that incorporates great design – whether this means an entire new use for the center or creating an environment that brings tenants and shoppers back – is a critical piece of the puzzle. This will also allow owners and industry professionals to be more selective in their tenant selection and increase the likelihood of a successful project. Understanding what shoppers want and then filling that need will also help to keep that project successful into the future.