Commercial Space Rental: Evolution of Retail Neighborhoods

April 7, 2016

Lively neighborhoods are a real estate dream. Apartment residents love the short walk to restaurants, shops and other services. Businesses love the steady stream of shoppers and clients that populate the streets.

And building developers are so keen on the concept that they’re consistently erecting new apartment buildings in urban and semi-urban neighborhoods with retail space included on the ground floors. But there’s much more to creating a lively retail neighborhood than having a few street-level storefronts for rent.

What Retail Neighborhoods Need to Thrive

Loads of potential customers are a key ingredient for retail neighborhood success, yet that often only comes from an area that’s already brimming with other nearby shops. Developers, however, are often encouraged by officials to erect buildings with retail spaces in more barren areas that have yet to develop anything that even resembles a lively atmosphere.

Many cities are still attempting to promote the retail space, whether the location is in a viable retail area or not. Nearly 35 percent of apartment properties slated to open through 2021 will be combining apartments with retail or another real estate asset class, according to research from Axiometrics

The figure is 28 percent higher than the number of mixed-used space buildings that opened between 2010 and 2014. But that may be no surprise, based on the growing trend for apartment renters to want to live in active, walkable neighborhoods. Many will even pay up to 10 percent higher rents to live within walking distance of a grocery store.

Yet even up to 20,000 square feet of retail space in a building that houses up to 300 tenants will generally have little to no impact on creating the coveted bustling neighborhood. And even if apartment renters want to live near shops, restaurants, bars and other services – they don’t necessarily want to live above them.

The Bottom Line

Commercial renters looking at ground-floor retail space would be wise to beware. Unless the neighborhood is already established and thriving with nearby businesses, the tenants above your shop are not going to be enough to keep you alive.

Also keep in mind all neighborhoods change, some rather rapidly if new developments or projects are planned for the area. Do your research; talk to your agent. And if a lively location is your goal, make sure you’re moving into one – not expected to create one on your own.