Research & News

Bigger isn’t always better. Gone are the days of ten-acre power centers with sprawling surface parking lots and large, at-grade loading docks. To remain competitive in today’s commercial real estate climate, retailers and developers alike are getting creative to maximize smaller spaces.News of downsizing, rising land values and limited land supply is being met with retail use cases that make the best of growing densification. However, the fundamental question remains: how can we optimize real estate opportunities in urban neighborhoods while providing the customer with a seamless and convenient shopping experience?The answer is simple.Smart retailers are accounting for both topography and complementary brand operators to create successful - yet dense - commercial centers.One recent example is the project completing construction at the intersection of La Brea Avenue and San Vicente Boulevard in Los Angeles. Developed by the CIM Group and leased by Xan Saks and Richard Rizika of Beta Agency, the project features three anchor tenants – Target (approximately 30,000 square feet), Sprouts (approximately 26,000 square feet), and Michaels (approximately 20,000 square feet) across two levels of retail. The developer was able to creatively utilize the topography change on the street to allow for both levels of the project to have street access as well as subterranean and rooftop parking. Perhaps most importantly, the site design allows for substantial brand presence. Target and Michaels have their storefront on La Brea, while Sprouts has theirs on San Vicente. The entire project is connected by a common vestibule in the middle of the site, which has vertical transportation to and from each level.Surprisingly, the land parcel the development was constructed on is only approximately 70,000 square feet or 1.6 acres. To put that in perspective, if you were to develop a freestanding single level building with adequate surface parking on this land parcel, it would likely only be around 18,000 square feet. This developer was able to fit more than 75,000 square feet of leasable area on the same parcel by leveraging the grade changes of the street and seamless vertical design. Similarly, retailers are learning how to operate and co-exist with other retail partners on smaller sites.

Midtown Crossing is another recent example. A multi-level power center located at the crossroads of Venice, Pico, and San Vicente Boulevards in Los Angeles, it was designed to take advantage of the topography change on each of the streets it intersects. The lowest level features Lowe’s Home Improvement as its anchor. This level has at-grade vehicular access and frontage to Pico Boulevard. The upper level features Smart & Final Extra, Ross Dress for Less, Bob’s Discount Furniture, Petsmart, and ULTA. This level has at-grade vehicular access and frontage to Venice Boulevard. The 300,000 square foot center is conceptually one power center stacked directly on top of another. In a suburban market, a 300,000 square foot power center would likely require close to 28 acres to develop. In this case, Midtown Crossing sits on approximately 8 acres.

As large developable land continues to become scarce, developers and retailers must continue to find innovative ways to penetrate urban markets. Additionally, rising land values put more pressure on developers to find ways to add density to any development site. Lastly, many urban cities are further embracing updated zoning codes to allow for higher, larger and denser projects. While dense residential and office development is nothing new, retailers must adapt to this changing landscape in order to maintain a presence in many of the communities they would like to serve.

Over the past few years, there has been a noticeable shift in the imagery and messaging retailers are using to reach their consumers. Many companies are harnessing the power of inclusive marketing, which reflects the diverse communities that a retailer serves—representing all ages, sizes, ethnicities, gender identities and so on. Savvy retailers are taking this one step further: bringing their storefronts directly to consumers who have been historically underrepresented.In addition to inclusive marketing in print ads and social media, the logical strategy extends the brand with a brick and mortar presence in the actual communities where these target consumers live—not necessarily West LA, Beverly Hills and Hollywood. There are millions of consumers living east of the 405 Freeway in Los Angeles County who have disposable income that they will spend on new food, fashion, fitness and experiences; there is a demand and innate craving to have these experiences accessible locally in their own backyard, rather than having to fight traffic or find transportation to get to the Westside of Los Angeles.The benefits of expanding brand presence in these markets is two-fold. First, these locations can be profitable for retailers. A physical presence drives a sense of community, place, and gathering at shopping centers, leading to increased positive engagement on social media platforms and increased sales revenue—bringing awareness and engagement full circle. These areas can also serve as fulfillment centers to nearby residents, helping to solve for last mile logistics, and cutting costs on distribution and transportation. In addition, many larger brands approach these locations from a mission-driven perspective, aiming to improve their micro neighborhoods through investment in hiring from the community and, in certain instances, selling local products.Nike is one example of a brand that has recently implemented this strategy with its community store on Whittier Boulevard in East Los Angeles. Leveraging the intersection of sports and lifestyle, Nike fostered a true sense of place within a diverse setting. This community store helped create a unique amenity within the local community and serves as a gathering place for residents. The company has opened additional community stores in Brooklyn, Washington, D.C., Tuscaloosa, South Chicago and New Orleans.Grocery giant Whole Foods has taken a similar track in Englewood, Chicago, a neighborhood that historically has experienced high rates of violent crime. However, Englewood is also home to many working-class families struggling to find proper groceries amidst its food deserts. Opening in 2016, Whole Foods occupies 18,000 square-feet within the newly-constructed Englewood Square. Almost one-half of the store’s employees were hired directly from Englewood, and this location sells upwards of 35 Englewood-made products, allowing vendors to boost their own staffing. Moreover, the entrance of Whole Foods into a community that is underserved from traditional retail allows for increased access to fresh foods, greater connection to the community, and education about healthy eating habits.Starbucks has also invested in several low-income communities across the country in New York, Milwaukee and a store in Englewood, Chicago. With an aim to integrate disadvantaged youths into the workforce, Starbucks has created a program to hire those who are at risk of never achieving economic self-sufficiency. These stores will not only employ dozens of youth from the local area, but will also provide a dedicated space for training; utilize local women and minority-owned contractors for design and construction; and work with suppliers to sell local food products. This initiative is part of Starbucks long-term expansion strategy.Retailers and shopping center owners can both benefit by bringing inclusive marketing and brand awareness to all communities, not just high socioeconomic communities that have access to upscale retail amenities. Retailers need to make the commitment to consider these markets, and shopping center owners must commit to investing in these markets to offer a homestead for those brands willing to make the investment to have meaningful impact in these communities.We welcome retailers and shopping center owners to reconsider underserved communities as a part of their inclusive marketing strategy to successfully grow their respective brands and places and capitalize on this opportunity.By Jennifer Meade, Vice President, & Richard Rizika, Partner & Co-Founder, Beta

Richard Rizika was recently featured in the Los Angeles Business Journal’s special report, Who’s Who in Real Estate. The article addresses several questions related to the future of retail real estate and exciting deals that have happened this year in the Los Angeles market.

To read the full article, please visit: https://labusinessjournal.com/news/2019/oct/04/retail-shoppers-seek-out-unique-experiences/