Streetsense Marketing Director Heather Arnold gave developers and others a choice at a recent meeting in Alexandria: the hard brutal truth or continually high retail vacancies over the next 50 years. No one at the Southeast Fairfax EDC breakfast summit complained when she proceeded with the former. The bottom line – “We have too much of it [retail],” she said. “We have to stop being foolish putting it everywhere.”
Looking at their statistics, parts of Montgomery County among other areas in the DC region are becoming office building graveyards, many of which have ground floor retail built without consideration of need or demand. In total, a staggering 60 million square feet of commercial space sits empty in the metropolitan area. If it was laid out horizontally, that real estate would consume almost 1,400 acres or roughly 1060 professional football fields.
The problem is by no means limited to the DC area. Streetsense recently delivered a similar presentation to a packed room at the International Council of Shopping Centers’ conference in Las Vegas, a sign that “people are starting to get nervous and cluing in” to the threat, commented Bruce Leonard, the design firm’s managing principal. “If we gave this talk four years ago, the room would have been empty.”
A significant cause for the glut is the fact that the cheapest retail space to build is for stores that sell products such as clothing, books, toys, electronics, home décor or cards – this category of products “is getting annihilated by dot com,” Arnold pointed out. Uses that are often more in demand such as grocery stories or restaurants, are more expensive to build. In some cases, stores outgrow their current site so they move on, “like a snail leaving its old shell behind,” she said.
Where do popsicles fit in? “The idea we should promote mixed use in suburban areas came from the “popsicle effect,” Arnold explained, which is the notion that every kid should be able to buy a popsicle on the way home from school.” But that notion ignores certain market realties that are becoming painfully clear.
Formula for Survival, Success
While some spaces sit empty, you may be one of the thousands of people who wish they had more of this or that in their neighborhood, whether it’s a Trader Joe’s, a drugstore, or place to eat sushi. Don’t get me started on the fast food conglomeration that took over my hometown of Beltsville – it was great when I was a French fry eating kid, but once I started to seek nice restaurants or cool bars where I could meet friends or dates? Forget it.
Even if your local government is offering incentives to lure the coveted Wegman’s or Whole Foods to open there, it’s a tough numbers game. Incentives are only a factor in closing the deal after the site meets the retailer’s requirement for average income, population and traffic counts. And to stay alive, rent can’t consume too much of monthly sales, ideally no more than 6 to 8%. So, you want an organic grocer? Get your neighbors a raise or have more kids. And drive around a lot to jack up the traffic counts.
Another important trend affecting retailers is that consumers are more and more looking for a destination experience, not just a place to buy stuff. The Shops at Wisconsin Place, an attractive outdoor mall that is home to national retailers such as Bloomingdales and Anthropologie is struggling despite its high-income neighborhood, Leonard told the audience. “It has no sense of place,” he said, contrasted with Bethesda Row, which is thriving. He credits the developers for including both national and unique local businesses and investing heavily in street trees, “so it went from hot and unhospitable to comfortable.”
If you’re going to shop outdoors in the DMV this month, you gotta have shade!