If I asked you if our nation’s cities or suburbs are growing at a faster rate, you’d probably say cities without hesitation. The truth, however, is that according to a recent Urban Land Institute (ULI) study the suburbs of America’s 50-largest metropolitan areas accounted for 91 percent of their population growth from 2000 to 2015.
It’s true that millennials are moving back to cities in droves, and every real estate developer is flocking to build retail for these underserved markets. We are one of them. We’ve opened almost two dozen Primrose schools in urban areas over the past few years and another dozen are on the way.
But the next 10 to 15 years will see a renewed focus on the suburbs, as more millennials move there in search of a more affordable cost of living and good schools for their children. Many are already there. The same ULI study reports that 75 percent of 25- to 34-year-olds in our nation’s 50-largest metros already live in the suburbs.
A Changing Retail Landscape
Given the size of this generation, their effect on commercial real estate is enormous. And these consumers are remaking the retail industry, in particular. Millennials have made it clear that they’re not content with the retail of their parents’ generation. They’re demanding a more “urbanized” type of retail – walkable, with good restaurants and nightlife options. Think town center rather than shopping center. This change in retail preferences has contributed to the decline of the enclosed shopping mall, but it also presents a significant opportunity.
Suburban malls may be struggling as a whole, but they have two things going for them – lots of land and well-trafficked locations. Forward-thinking developers are using this to their advantage and redeveloping malls to cater to today’s consumer.
From Shopping Mall to Town Center
Ten years ago, Steiner + Associates successfully redeveloped a struggling 1950’s-era mall located in the Milwaukee suburb of Glendale. Bayshore Mall went from a parking-heavy, enclosed shopping center to a 1.2 million-square-foot town center that features retail, office space, apartments, a movie theater and a town square – all in a street grid with better walkability.
Two years following Bayshore Town Center’s completion, it had achieved 85 percent retail occupancy, 75 percent office occupancy and 97 percent multifamily occupancy – not bad numbers for a project that opened during the Great Recession.
The Right Tenant Mix
Redeveloping a mall isn’t just about opening the roof and adding a few new streets. A successful redevelopment needs to bring in the right tenants. What tenants are going to thrive in this new generation of shopping centers? Service providers, and here’s why:
- Evergreen need: Think about child care centers, gyms and barber shops. They’re not seasonal; people don’t only need haircuts in the summer or child care in the fall. These are year-round services with year-round demand.
- Constant demand: All of the service providers mentioned above draw traffic to retail properties on a more regular basis – sometimes daily.
- Resiliency: E-commerce affects service providers far less than consumer goods providers. Amazon won’t be able to care for your child for you (at least, not anytime soon).
These tenants also can fill spaces within existing malls that may not be struggling. Houston’s Galleria is a highly successful mall in a great location. But a space on its mezzanine level had always been underutilized due to a less-than-prime location. For years, Galleria management used the space to store its Christmas tree.
When Primrose saw this site, we realized that its low-traffic location with direct access to the parking deck made it a perfect spot for a Primrose school, so we leased it from Simon Property Group. Five years later, that school has become very successful and is a great benefit to parents who live and work in the Galleria area.
If you find yourself redeveloping a shopping mall, think carefully about the retailer you’re bringing to the table in the planning stages. Is this retailer from a bygone era, or is it the type of tenants who will thrive in today’s walkable urban centers? While consumer goods will always be a component of shopping centers, service providers will play an increasingly large role in the years to come.
Want to learn more?
We invite you to stop by Booth# S 464 Q Street in the Leasing Mall at ICSC RECon on May 21-24 to chat about how Primrose can benefit your retail property.