Since the end of the COVID-19 pandemic, many shoppers again prefer in-person retail experiences to buying online, which is rebooting the bricks and mortar retail market. While availability of retail space in destination lifestyle and neighborhood shopping centers has tightened, however, a significant amount of ground-level retail space remains vacant in urban centers.
This includes spaces formally occupied by small businesses dependent on office workers, such as sandwich shops, that closed during the pandemic and never reopened. It also includes ground-level commercial spaces in newer residential mixed-use projects that were required by cities to generate active, pedestrian-oriented streetscapes but were unable to secure tenants or vacated during the pandemic.
As a result, some state and local governments have relaxed rules for urban residential mixed-use projects and or are actively encouraging building owners to adapt empty spaces for housing or other compatible uses with higher demand.
The City of San Diego in 2020, for example, relaxed rules requiring ground-level retail in urban residential projects, allowing developers to substitute live-work, apartments, or office space for retail and changed rezoning rules to allow live-work units in more neighborhoods. Three projects in downtown and East Village, which is home to the Makers Quarter and I.D.E.A. Innovation District, have already ditched ground-level retail for live-work units aimed at entrepreneurs, artists, artisans and other creatives. These include the Pinnacle tower, which has 17,000 square feet of commercial space, and IDEA1, which had 14,000 square feet of commercial space.
The City of Santa Ana has always been open to flexible solutions when developers had initially included too much ground-floor commercial, says Ali Pezeshkpour, the city’s planning manager.
“The reality is no city wants to see darkened spaces or storefronts for a very long time,” Pezeshkpour explained. “Rather than put ourselves in that situation, we’ve always been open to live-work or developers putting residential amenities on the ground floor like the community’s fitness center or leasing office where you have a presence of people along the street front.”
“We keep a very close eye on these things,” Pezeshkpour added, noting that Santa Ana requires developers of mixed-used projects to provide a market analysis, prepared by a marketing expert, to determine how much is the right amount of commercial space for a project.
The study must take into account existing conditions in the vicinity, like whether there is already an excess of commercial square footage within a half a mile radius. Conversely, if the market analysis shows that there’s very good absorption and a shortage of commercial vacancies, then the city will allow the requested amount of commercial space.
Pezeshkpour also emphasizes the importance of design to the success of the retail component, and says that his department works with developers to partner with mixed-use or retail design experts or developers because residential developers generally don’t have the expertise or knowledge of what needs to go into to commercial spaces to provide a good customer experience or the necessary infrastructure, like tall ceilings to allow for placement of duct work and lighting.
Housing demand eclipses retail demand
Locally-based TCA Architects redesigned ground-level retail spaces in two downtown Los Angeles residential projects to live-work units and is working on two other Southern California redesigns in Glendale and Huntington Beach.
TCA originally designed the five-story, 204-unit Canvas LA residential project for Arizona-based Alliance Residential with ground-level retail because Los Angeles building code provides significant advantages for mixed-use projects. The retail space at Canvas LA, which backs up to a high school and is adjacent to the I-10 Freeway, however, has remained vacant for about seven years.
“We put the retail in at the behest of the city knowing full-well this would be a very challenging place for retail,” noted TCA President & CEO Aram Chahbazian.
The project’s new owner, LaSalle Investment Management, rehired TCA to convert the retail space to six live-work units. The biggest challenge encountered, Chahbazian says, was the site’s slope, as each unit had a slightly different elevation that required ramping inside the parking garage to provide access from units. Interestingly, these units were leased before they were completed, mostly by existing tenants who wanted a workspace in their house.
Similarly, the ground-level retail space at the six-story, 287-unit Camden Glendale apartments, which TCA originally designed, has remained vacant. So, Camden Property Trust rehired TCA to redesign the commercial spaces to live-work units. The Huntington Beach project is converting three of the six ground-level retail spaces, which have remained vacant, to live-work units.
Atlanta-based GID also hired TCA to is convert the ground-level retail space at the luxury, 205-unit Renaissance Tower in downtown Los Angeles to live-work units. He suggests that failure to lease-up retail space in this project, which is in the popular South Park district on Olympic Blvd., is the result of both the COVID pandemic and civil unrest in downtown during the Black Lives Matters riots. “Downtown LA suffered greatly from all of that,” Chahbazian recalled.
The challenges for this project involved the mechanical systems since mechanical systems in restaurants are different than in residential spaces. In towers, the mechanicals for the residential component are on the roof, and bringing the infrastructure down to the ground floor can present challenges, he explained.
Government backs new proposals
This project is taking advantage of a new law created by California Senate Bill 6, the Middle Class Housing Act of 2022, which allows development or adaptive reuse of underutilized commercial spaces to create housing in areas zoned for commercial use, so long as the project meets certain criteria or requirements, including use of union labor.
Actually, the California Legislative has enacted several bills over the last three years to deal with the gut of underperforming and vacant commercial buildings and storefronts and help overcome the state’s multimillion-housing-unit shortage. This includes AB 68, or the Housing and Climate Solutions Act, which allows conversion of vacant or poorly performing commercial spaces to residential use in areas zoned as commercial, and AB 2011, or the Affordable Housing and High Road Jobs Act of 2022, which authorizes 100 percent affordable and mixed-income housing developments along commercial corridors, subject to a streamlined, ministerial approval process and not a conditional use permit, if the development satisfies specified objective planning standards.
Portland also has relaxed rules for ground-level retail in residential mixed-use projects in the South Waterfront and Pearl districts, allowing vacant retail space in these buildings to be converted to live-work or housing units. Simpson Housing, for instance, turned ground-floor retail space at The Mattise apartments into 19 walk-out apartments and a space intended for a restaurant into two-level lofts. Other developers in the area changed their line-up of ground-level storefronts to walk-out apartments or approached projects with the flexibility to build it out either way.
Residential developer Mill Creek Residential Trust also decided to create live-work units for occupants, such as therapists, accountants, hairdressers and realtors, in place of retail in a project in the Pearl District. The nearby Enso Apartments on Northwest Marshall St. also converted its ground-floor retail storefronts to live-work spaces.
“At the ground level, live-work is preferred over apartments,” stressed Magan Reed, public information manager and spokesperson for the City of Portland Bureau of Planning and Sustainability. “For the ground level of buildings, live-work allows a more active part of the interior space to interface with the public realm, so blinds can be up, doors can be used, and eyes are on the street.”
“Also, many live-work examples we see have a lofted area above and away from the street that includes a private residential use,” Reed added, noting that the city in general, prefers active uses over any type of living unit at the ground level in certain areas of the city.
Bringing life back to cities
Atlanta-based Colline Ayala, a partner at the architectural firm Perkins & Will, spent 20 years working on urban mixed-use projects in Washington, D.C., and New York City, and currently works on projects in the Atlanta metro area. “Post COVID we started to see a shift in how people live and work in urban settings,” she said, noting that cities are looking at transforming unleased office space to housing and exploring the idea of converting office to living space as well.
“When we look at the ground plane, mixed-use buildings have always sought pedestrian-friendly uses and to enliven streetscapes to provide a connection to the public realm,” said Auala. “And usually, the way that that has happened is with outdoor seating, and restaurants—creating active uses at the base of the building “
But with retail and office suffering Post-COVID, cities are now exploring other types of uses at the base of buildings to preserve an active, pedestrian-friendly experience. Uses under consideration include public or community-centric uses as options—libraries, community centers, daycare centers and preschools—where there is glass along the street front, as well as alternative residential uses like live-work, where you could have artists or entrepreneur workspaces on the ground level and private living spaces above.
“I think we will continue to see creative thinking on the part of cities, designers, and building owners to deal with this issue,” Ayala continued, noting that she redesigned retail space to duplexes in a project in Washington, D.C., area and put the community’s amenities, like the fitness facility and bike parking, on the ground level to enliven the streetscape.
She notes that these uses offer quasi-retail-looking spaces, because they have a lot of glass that provides a retail quality at the base of buildings. Perkins & Will did another project where the bike parking space was used to create a bike shop, Ayala said. Although the bike shop is an amenity for residential tenants, it appears as retail to pedestrians passing by, as they can look through the glass window and see water bottles, places to fix your bike, and different branded merchandise provided by the apartment management.
Meanwhile, NYC is struggling with what to do about all the empty ground-level storefronts in Manhattan neighborhoods that closed during COVID and never reopened due to the prevalence of remote work and downsizing of office occupancy. Architects Hilary and Michael Meredith explored what to do with dark retail space in their book Vacant Spaces NY, which reveals many high-impact opportunities for adaptive reuse of Manhattan’s empty retail spaces.
They demonstrated that rethinking retail in Manhattan neighborhoods, where available housing is typically limited, represents a great opportunity for both neighborhood reinvestment and quality housing. A conservative estimate of retail vacancies reveals that converted retail spaces in Manhattan alone could easily provide housing for up to 125,000 residents—about 100,000 micro units or 35,000 two-bedroom apartments, for example. They also suggest that the city and state think about providing incentives for the conversion of retail space into desperately needed housing resources.
Meanwhile, New York City Mayor Eric Adams and City Planning Director Dan Garodnick recently announced plans to change zoning to allow conversion of commercial buildings to housing in a 43-block area of Manhattan currently zoned only for office and manufacturing uses. The Midtown South Neighborhood Plan is a community planning process that will update zoning rules to encourage creation of a vibrant, 24/7 live-work community with new homes nearby good job opportunities. While the program is aimed at converting underutilized or vacant office buildings to housing, it also may encourage conversion of vacant storefronts to live-work and apartment units, as well as accessory, neighborhood or public uses, such as daycares, preschools, fitness facilities, and neighborhood libraries.
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