Should Online Shopping Change How We Approach Mixed Use Development?

[M II A II R II K]

Should Online Shopping Change How We Use Space?


February 16, 2017

By Randy Shaw

Read More: http://rooflines.org/4780/should_onl..._we_use_space/

Should ground-floor use go from retail to housing? In San Francisco, the closing of once-popular San Francisco restaurants and the decline of longtime Union Square pillar Macy’s raise a question: Have the fundamentals of urban retail changed?

- San Francisco could move to reduce retail requirements in new housing developments while adding badly needed housing, which would represent a dramatic change in “best practices” for urban neighborhoods. Jane Jacobs’s support for mixed-use development with “eyes on the street” has long been seen as the best urban design strategy, but this vision assumed that the retail under housing could be rented. What if it cannot? Or, what if the only market for these retail spaces are for offices closed on evenings and weekends? Such uses do not offer the ongoing street activity that created Jacobs’s famed street “ballet.”

- An intriguing article out of New York City found that despite the economic upturn, vacancy rates are up in every Manhattan retail corridor. Some argue that unlike past downturns, this one is not cyclical. Brokers believe that “brick-and-mortar retailers will shrink dramatically during the next few years, so supply of retail space will outweigh demand for it.” I recall that over a decade ago, Berkeley Daily Planet Editor Becky O’Malley questioned whether Berkeley had too much retail in light of people’s shifting purchasing activity to the internet.

- Urban America’s buying habits have shifted even more dramatically since that time, raising questions as to whether it’s time to rethink the popular model of mixed-use development. Like nearly everyone else, I prefer the look of mixed-use streets. I bemoan the Tenderloin’s unusual lack of mixed-use housing, despite challenges finding quality tenants for existing spaces. Jacobs was correct: mixed-use streets are more interesting, and have more energy and foot traffic. So before we give up on mixed use, let’s consider how San Francisco and other cities can maintain successful retail in an online world.

- Restaurants, bars, and entertainment venues offer something the online world cannot easily duplicate: a sense of community. Watching a musical or theatrical performance on a computer screen won't have as big of an impact as watching a live performance. And you can't get a latte or a bottle of whiskey delivered to your door minutes after ordering it online. I actively try to recruit retail in San Francisco’s Tenderloin, and restaurants, bars, cafes, and entertainment venues are the only businesses that have ever thrived. --- Nearly all new Tenderloin businesses are restaurants, bars, cafes, or nonprofits that are not dependent on a local paying customer base. The few relatively new clothing and retail stores are the clear exception.

- It seems that all of the San Francisco streets that have been transformed in the past decade—such as Valencia, Divisadero, and Hayes—saw the process driven by this type of business. New condos and other types of retail played a part, but the visual look of the streets changed most due to the core internet-immune retail businesses. --- In the non-gentrified neighborhoods that struggle to attract and maintain non-food retail business, city assistance is essential. San Francisco’s Office of Economic and Workforce Development operates an Invest in Neighborhoods program that offers up to $75,000 in city assistance to qualifying new small businesses.

- Technical assistance from city staff is invaluable, but attracting non-food retail to ground-floor commercial spaces often requires actual financial city assistance, that’s why San Francisco’s Legacy Business program also includes grants. Even longtime successful businesses need help in the current economic environment. City staff must also provide a reality check for landlords seeking retail tenants. Many have a grossly inflated valuation of their space that results in long-term retail vacancies. These vacancies create a negative retail climate that makes others hesitant to enter.

- For all that the city can do, it may be time for planners and city officials to take a more flexible, reality-based approach. The days of “if you build it, a retail tenant will come" appear to be gone. The former Market Street Place (now 6 X 6) described by JK Dineen in the San Francisco Chronicle as “the biggest and most ambitious retail development in San Francisco since the Westfield San Francisco Centre expansion” a decade ago remains without a tenant. When a beautiful new development like this cannot easily get tenants, think what that means for those trying to rent other non-food retail in the same area.

- Should San Francisco bite the bullet and accept that the city needs housing more than new retail, and that online shopping makes requiring retail in new developments not worth the housing loss? Planners and/or supervisors need to convene a public meeting to discuss the ground- floor use issue. One idea is to allow developers to split ground-floor space 50-50 between retail and housing, so we get some eyes on the street without sacrificing needed units. As developers are being asked to pay steeper inclusionary housing fees, allowing additional ground-floor units could further a compromise.

.....

[Crawford]

Ground-floor retail isn't going away, and retail rents haven't dropped. So, no.

If anything, there's more retail nowadays, with new developments more likely to have multilevel retail spaces. Retail is also generally more lucrative than residential, so will continue to be prioritized by developers, it provides more tax revenues to cities, and it animates the streetscape. Streets with ground-floor residential are inherently boring, regardless of density.

Also the author represents the Tenderloin, which is an unusual neighborhood. It's probably true that the Tenderloin has a hard time attracting legitimate retail, because it's basically all subsidized housing and full of homeless and undesirable street activity. I doubt normal SF neighborhoods have difficulty filling retail corridors.

[Pedestrian]

^^Ground floor retail collectively, as a class of business, isn't going away entirely, but the amount of it needed and the types is going to change radically and already has. I have been saying largely what the article is saying for 2 decades now but I may have been premature (I have tended to be personally an "early adopter" when it comes to buying things online). Today I think I am being proven right.

Look at what's happening to department stores: It's Not Just Macy's: Department Stores Are in a Death Spiral

All over San Francisco one sees these new developments with mandated ground floor retail that is empty (there's one building along the Embarcadero that has been unable to lease its ground floor retail since the 1980s). In my city this is exacerbated, however, by a simultaneous policy to disallow "chain" stores (defined as establishments with 11 or more other locations in the US) in these spaces. We are simply over-stored at this point.

As the article says, however, certain types of establishments can fill some, if not all, of the gap: those where you either can't buy online, would likely prefer not to or those that are mainly service-oriented. This is everything from restaurants and bars to pharmacies to dry cleaners and laundromats to bank branches (yes, you can bank online but occasionally you want a branch) to grocers (and subsets like produce, meat and seafood markets).

Still, in many neighborhoods in many cities we just may not need more storefronts and that's a real problem because I dislike blank sidewalk-facing walls and uninteresting streetscapes as much as anyone.

Originally Posted by Crawford

the author represents the Tenderloin, which is an unusual neighborhood. It's probably true that the Tenderloin has a hard time attracting legitimate retail, because it's basically all subsidized housing and full of homeless and undesirable street activity. I doubt normal SF neighborhoods have difficulty filling retail corridors.

This is a common misconception about the Tenderloin. The Tenderloin has a lot of subsidized housing but "subsidized" isn't public housing. It is "affordable" meaning rents can and do often exceed what is considered market rate in most of the country. And there is still a lot of privately owned and even upscale housing in the Tenderloin:


https://www.sanfranciscocondomania.c...E-HAMILTON.php

$4 million in the Tenderloin? Yes--in the heart of it.

But mostly the Tenderloin these days is a bustling immigrant neighborhood full of south and southeast Asian families and lots of Thai, Vietnamese, Indian, Pakistani and other businesses serving them. Here are some streetscapes showing the tupes of businesses that exist:











And because of the relatively lower rent, a number of restaurants serving other cuisines, especially middle eastern, have recently opened in the neighborhood: Halal Guys open first outpost in S.F.

[Crawford]

Originally Posted by Pedestrian

^^Ground floor retail collectively, as a class of business, isn't going away entirely, but the amount of it needed and the types is going to change radically and already has. I have been saying largely what the article is saying for 2 decades now but I may have been premature (I have tended to be personally an "early adopter" when it comes to buying things online). Today I think I am being proven right.

Look at what's happening to department stores: It's Not Just Macy's: Department Stores Are in a Death Spiral

Of course retail is always changing. That isn't really addressing the concerns in the posted article. All industries are in constant flux and must constantly adapt.

Department stores are not doing poorly. Most are highly profitable. The only major U.S. department store in deep trouble is Sears. Class A shopping districts, malls and department stores have basically never been more profitable. It's just that the U.S. is badly overretailed, so the B and C locations are getting hammered.

Originally Posted by Pedestrian

All over San Francisco one sees these new developments with mandated ground floor retail that is empty (there's one building along the Embarcadero that has been unable to lease its ground floor retail since the 1980s). In my city this is exacerbated, however, by a simultaneous policy to disallow "chain" stores (defined as establishments with 11 or more other locations in the US) in these spaces. We are simply over-stored at this point.

Maybe there are some factors unique to SF, but I don't see this in NYC. Retail rents have never been higher, and vacancy rates are low. New projects generally have huge amounts of multilevel retail space. I don't doubt that if SF adjusted zoning to allow retail chains and restaurants, the issue would improve.

And I'm not even sure if the premise is true in SF. I only visit SF every few years, but to me, Union Square has never been more vibrant and retail-laden as right now. Market Street has never looked better than right now. Market Street was awful; a total dump just a few years back, with few legitimate businesses.

[Pedestrian]

Originally Posted by M II A II R II K

The former Market Street Place (now 6 X 6) described by JK Dineen in the San Francisco Chronicle as “the biggest and most ambitious retail development in San Francisco since the Westfield San Francisco Centre expansion” a decade ago remains without a tenant. When a beautiful new development like this cannot easily get tenants, think what that means for those trying to rent other non-food retail in the same area.

Let me elucidate this one a little. I have a vested interest--I actually testified in favor of building this before the SF Planning Commission.

At that time, the intended anchor tenant was Target which had no store in San Francisco. But the SF planning/approval process just took too long. Target was anxious to get a store in the city and another opportunity came along (several actually) which they grabbed. So have several other possibilities: Nordstrom Rack, Saks "Off-Fifth" and so on. That left MSP with no pre-leases but they built it entirely on spec anyway.

The building itself has a lot going for it. Besides being quite attractive, it was to have (and I assume does) a direct underground connection to the Powell St. BAT/Muni Metro station. It is located on the eastward edge (adjacent to the more affluent Union Square/lower Market shopping area) of Mid-Market which is a renewing area of tech entrepreneurship (home of Twitter, Dolby Labs, Square and others) but also is adjacent to the Tenderloin (see above) which does have a dirth of Target-style big box/chain discount retailing.

But having been completed last autumn, it does remain empty. Why is something of a mystery. We don't know what rents they are asking for this beautiful modern space on a nevertheless "improving" stretch. Too much perhaps? Too picky as to whom they will rent? Time will tell. I do believe they will find somebody. I was hoping for J.C. Penney which is also missing from the city. There is also the ever-present shaddow of Wal-Mart which also has no SF outlet but is so politically incorrect it may not dare.

[Pedestrian]

Originally Posted by Crawford

Department stores are not doing poorly. Most are highly profitable. The only major U.S. department store in deep trouble is Sears. Class A shopping districts, malls and department stores have basically never been more profitable. It's just that the U.S. is badly overretailed, so the B and C locations are getting hammered.

You're just wrong about that.

Every US department store had a bad Christmas this year which Amazon.com did very well. Overall holiday spending was up but bricks/mortar department store spending was way down. The financial press is full of this dilemma and questions about what it means but the overall department store spending is not a function of any one or group of malls. It's total bricks/mortar vs total online.

Buried in boxes: New York doormen swamped by online holiday sales

Maybe there are some factors unique to SF, but I don't see this in NYC. Retail rents have never been higher, and vacancy rates are low. New projects generally have huge amounts of multilevel retail space. I don't doubt that if SF adjusted zoning to allow retail chains and restaurants, the issue would improve.

Why then: MACY'S TO CLOSE 68 STORES, 2 IN NEW YORK AREA

If you are right about New York, it is the exception. But I think if you go beyond midtown and SOHO Manhattan, you may find the national trends.

And I'm not even sure if the premise is true in SF. I only visit SF every few years, but to me, Union Square has never been more vibrant and retail-laden as right now. Market Street has never looked better than right now. Market Street was awful; a total dump just a few years back, with few legitimate businesses.

The up cycle is over and people are already worried: Despite an influx of tech companies, Mid-Market restaurants and retail shops have struggled

[mhays]

My city requires way too much retail as it is. Secondary streets in secondary districts are forced to have retail which detracts from primary retail streets. It's all based on people's desire to walk down retail streets, regardless of demand. So we have a lot of longtime vacant space, and spaces tend to fill at rents well below what development cost should justify.

Density and street density are huge variables. If you're Manhattan and N-S avenues are every 950', they're great for retail. If you doubled or tripled the number of N-S avenues they'd support much less retail volume per given distance.

[Crawford]

Originally Posted by Pedestrian

You're just wrong about that.

Every US department store had a bad Christmas this year which Amazon.com did very well. Overall holiday spending was up but bricks/mortar department store spending was way down.

That doesn't mean that department stores are doing bad. Basically all retail excluding Amazon was down somewhat this year.

Sales only go up or down. This Christmas they were down. Last year they were up. That doesn't mean department stores are inherently threatened. Even JCPenney is highly profitable, and they're closing tons of stores.

Originally Posted by Pedestrian

Why then: MACY'S TO CLOSE 68 STORES, 2 IN NEW YORK AREA

Macys has thousands of stores and opens and closes stores all the time. They're opening dozens of Macys Backstage stores while closing dozens of traditional Macys in weak locations.

Again, the U.S. is massively overretailed, so it makes sense that many department stores are closing, especially because so many stores anchor dying malls. But you will find that department stores in "A" malls and shopping districts have never been more successful.

Originally Posted by Pedestrian

The up cycle is over and people are already worried: Despite an influx of tech companies, Mid-Market restaurants and retail shops have struggled

Mid-Market was a Zombieland of derelicts, wig shops and closed porno shops 20 years ago. I remember strolling from Union Square to Civic Center as a kid, and it was like out of some 70's urban decay movie.

I wouldn't get all bent out of shape if some huge retail complex takes a while to fill. In the past no legitimate retailer would even consider Mid-Market. If they can't fill it, the upper floors can easily convert to office space. And there will always be food retailers.

[10023]

No.

[Pedestrian]

Originally Posted by Crawford

That doesn't mean that department stores are doing bad. Basically all retail excluding Amazon was down somewhat this year.

Sales only go up or down. This Christmas they were down. Last year they were up. That doesn't mean department stores are inherently threatened. Even JCPenney is highly profitable, and they're closing tons of stores.

Macys has thousands of stores and opens and closes stores all the time. They're opening dozens of Macys Backstage stores while closing dozens of traditional Macys in weak locations.

Again, the U.S. is massively overretailed . . . .

In the last sentence, you basically agreed so why the fight? The US is over-retailed and that goes for cities too--not just suburban malls--so we probably don't need more ground floor retail in new developments but the dilemma is what to put there besides blank walls. One recent development there has been at least one large new residential project in SF will have a museum (the Mexican Museum) on it's lower levels. This helps in 2 ways: easier city approvals by helping a "non-profit" and no need for empty retail storefronts for the developer.

As for Christmas, this last one was not down--it was up--but that was entirely due to online spending. Bricks and mortar was down. This was not an economic cycle trend but a change in spending patterns that's only going to get stronger.

As for Macy's, it's not just an economic cycle with them either. Here's how Wall Street is now looking at them: Macy’s Taps Brookfield to Mine Real Estate Cash as Sales Dip . And Macy's has substantial online sales which are doing quite well but the bricks/mortar stores are doing so poorly it doesn't matter. This was how Sears, which you mentioned, began going down the tube. Hedge-fund guy Eddie Lampert bought them supposedly for the value of the real estate and, because he knew nothing about retail, it has been sliding ever since. If investors, and more importantly Macy's management, begin to think of them as primarily a real estate play also, it's look out below. Maybe they should just take the money and run: Saks Owner Hudson’s Bay Makes Takeover Approach to Macy’s

[The North One]

I feel like this is yet another attack on the vibrancy of American cities and another step closer to isolation.

[ChargerCarl]

Originally Posted by The North One

I feel like this is yet another attack on the vibrancy of American cities and another step closer to isolation.

I disagree. Retail isn't going anywhere, but it'll be less about offering low prices on everyday commodities and more about providing boutique services and experiences.

Also more room for restaurants and other food and entertainment type businesses.

[ChargerCarl]

As for the decline of mid-market restaurants, I think that's largely due to high rent in American cities, which is a regulatory failure. I read an article recently profiling famous SF chefs and how the costs were simply too high to profitably operate mid-market type restaurants in the city.

[mhays]

Manhattan is full of ground floors that have other uses, and it works fine, with retail a block or two away. This was easier pre-ADA because the ground floor could be a few feet higher and nobody was pressing their nose against the window. That also allowed a daylight basement. But non-retail can still work, like putting the exercise room and lobby there, and maybe putting a narrow hedge along the building in the public ROW.

[James Bond Agent 007]

Originally Posted by Pedestrian

The US is over-retailed and that goes for cities too--not just suburban malls--

This. Certainly for shopping center/mall retail, there is just too much of it nowadays. Even while I was still living near Seattle, there were shopping centers in neighborhoods that had a retailer's wet dream demographics, but were half empty. Around where I am now, they could probably tear down a third of the total retail, and it might finally bring the market into balance.

[Pedestrian]

Originally Posted by ChargerCarl

As for the decline of mid-market restaurants, I think that's largely due to high rent in American cities, which is a regulatory failure. I read an article recently profiling famous SF chefs and how the costs were simply too high to profitably operate mid-market type restaurants in the city.

$15 minimum wage sure doesn't help either--I admit this even though I support it. Gradually I think people will get used to higher restaurant prices but for now there is resistance.

[the urban politician]

We need to double the population density of our cities, demo 50% of all strip centers, and it all returns to balance

[pdxtex]

millenials and hipsters want "experiences", not new stuff. that's why newly gentrified neighborhoods are always full of bars and restaurants. the internet has forever changed how we will purchase goods in the future. im not saying brick and mortar stores are dead but their days in some segments are numbered.

[Ant131531]

Originally Posted by pdxtex

millenials and hipsters want "experiences", not new stuff. that's why newly gentrified neighborhoods are always full of bars and restaurants. the internet has forever changed how we will purchase goods in the future. im not saying brick and mortar stores are dead but their days in some segments are numbered.

I was just about to say this. This is the negative effect of gentrifcation. When poorer immigrants flooded into urban legacy cities in the early part of the 20th century, they brought with them their own stores, bodegas, little markets, and shops to make money and provide for other immigrants just like them while being cheap. This is how cities were able to support so much retail space back then.

Now our cities are being flooded by yuppies who shop at the same stores and go to the same type restaurants that cost you a ton of money. Not only that, but new buildings always demand high rent so a lot of mom and pop stores simply can't survive in cities today so they're forced to go to the suburbs.

Your typical poor immigrant can no longer open up their own store, cafe, or restaurant anymore because for the most part, most of the older buildings are already filled with those types of places and newer buildings are too expensive to lease.

[ChargerCarl]

Originally Posted by Ant131531

I was just about to say this. This is the negative effect of gentrifcation. When poorer immigrants flooded into urban legacy cities in the early part of the 20th century, they brought with them their own stores, bodegas, little markets, and shops to make money and provide for other immigrants just like them while being cheap. This is how cities were able to support so much retail space back then.

Now our cities are being flooded by yuppies who shop at the same stores and go to the same type restaurants that cost you a ton of money. Not only that, but new buildings always demand high rent so a lot of mom and pop stores simply can't survive in cities today so they're forced to go to the suburbs.

Your typical poor immigrant can no longer open up their own store, cafe, or restaurant anymore because for the most part, most of the older buildings are already filled with those types of places and newer buildings are too expensive to lease.

This is a regulatory failure, not one of "yuppie" culture. Rent is high because business space is scarce and regulatory costs are high. So as places become more desirable prices rise until only higher margin enterprises can afford to stay.