Saturday, September 10, 2016

The truth about "mixed-use" development

Photo: Brian Rose

By John Cumbelich

As far as trends in retail real estate development go, none during my 30 years in the industry has been more counter-productive or government-driven than residential over retail mixed-use development (RRMU).

Pick just about any Bay Area city and you will easily identify any number of RRMU projects that have been proposed, entitled and/or developed over the past ten years. And with rare exception, these projects suffer the same ills---relatively high vacancy rates, substantially below market rents, poor credit tenancies, and a high turnover rate of the brokerage firms that try, with little success, to lease what is un-leasable.

Don’t get me wrong---as a design concept RRMU works beautifully…in Paris. And in Manhattan. And therein lies a big part of the problem. City planners and city councils across Northern California have revealed an inferiority complex to major urban markets around the world and tried to force feed this utterly urban product type into sprawling suburbs from Concord to Novato to San Jose. Only guess what? The most important ingredient is missing---concentrated, massive, pedestrian populations.

Retail developments thrive and enjoy competitive demand for their vacancies only when merchants and restaurants can succeed. The ingredients for the retailer’s success are universally known and proven: easy access, convenient parking, strong co-tenants, and proximity to a desirable trade area. 

In the Bay Area’s primarily suburban sub markets, well over 90% of shoppers get to their shopping and dining destinations by car. Only one of the Bay Area’s nine counties, San Francisco, can make a legitimate claim to having the kind of fundamentals that support RRMU, and even then only in select neighborhoods

But the retail landscape in every other Bay Area county is overwhelmingly suburban in nature and comprised of shopping centers, power centers, and regional malls with abundant parking, or traditional downtowns that cater to auto-oriented shoppers via street parking and proximate parking structures. 

Against successful and entrenched assets like these, with their ease of parking, strong anchor tenants and broad offerings, RRMU projects seek vainly to attract tenants who soberly see futures with no parking, no reliable anchor tenants or the traffic they generate, and, above all, no customers.

The Bay Area’s numerous submarkets fail to meet the fundamental criteria for RRMU for more reasons than lack of residential density. Remember that the European and east coast markets where RRMU has historically evolved are typically centuries old and have a far more restricted infrastructure of freeways, parking and roadways, which were all necessary factors in the natural growth of RRMU in those markets. RRMU worked in these markets because at the time that they developed, there was no alternative. 

Infrastructure in Northern California however is based on a 20th century standard, which gave rise to suburbs and the retail projects that serve them, thus eliminating the critical cause & effect chemistry needed for successful RRMU. Government elites have ignored these realities while advancing their Euro model for our communities.

Rapt by the dogma of New Urbanism, our municipal planners have uniformly ignored the fact that retail by its very nature likes to congregate. In retail lease planning, this reality is expressed through anchor tenants, larger formats and critical mass. Yet New Urbanism’s RRMU designs plug its ears and closes its eyes to this essential truth...

Thanks to The Antiplanner.

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