This article first appeared in The Orange County Register.
Amazon’s stunning acquisition last week of Whole Foods signaled an inflection point in the development of retail, notably the $800 billion supermarket sector. The massive shift of retail to the web is beginning to claw into the last remaining bastions of physical space. In the last year alone, 50,000 positions were lost in the retail sector, and as many as 6 million jobs could be vulnerable nationwide in the long term. Store closings are running at a rate higher than during the Great Recession.
Yet, there’s an opportunity opening for cities and regions to take advantage of new space for churches, colleges, warehouse space and, most importantly, housing. Nationally, an estimated 15 percent of all mall space will need to find new uses within the next decade. As many as 275 malls, according to Credit Suisse, will close in the next five years — roughly a quarter of the total. America already has four to five times as much retail space per capita as countries such as the United Kingdom or Japan.
The Infill Opportunity
The biggest opportunity for Southern California lies in the production of new housing, which would help to make up for providing less than half the needed supply for the past decade. To date, misguided state policy has created a raft of poor outcomes — rising prices, low inventory, declining affordability, the second-lowest homeownership rate in the nation — in effect, chasing middle-class, younger families out of the state.
State policy has made things worse by putting ever more regulatory burdens on housing, particularly for those who build single-family homes on the peripheral areas, where lower-cost residences have historically been built. But the state’s policy of pushing “infill” development has also foundered, as the price of new apartments has shot up, in part due to the limited land for developments.
These policies understandably upset residents of many urban neighborhoods, who feel that developers are seeking carte blanche to make their areas ever more congested and uniform. In contrast, a strategy of focusing on redundant retail properties — think attached townhomes or detached townhouses — would actually produce fewer cars than even a poor-performing mall, and would appeal to such key demographics as first-time homebuyers, immigrants, minorities and downshifting baby boomers.
The Future of Retail: A Physical Community
Despite the grim predictions, physical retail does have a future, and a potentially bright one. In some cases, the more high-end malls, such as The Grove, South Coast Plaza or Fashion Island, will continue to thrive by attracting tourists and high-end customers. Primarily, it’s the low- and mid-range retailers, such as Sears, JCPenney and Macy’s, that are in the deepest trouble, while chains like Nordstrom seem to be able to maintain their businesses.
The real revolution will take place in declining older malls, as well as the ubiquitous strip malls. In these places, there’s already a noticeable trend toward those businesses that are hardest to duplicate online, such as restaurants, gyms, tutoring academies and professional services. Traditionally, these developments are anchored by food stores, an area of brick-and-mortar commerce that has shown more resilience, and part of the reason why Amazon decided to buy Whole Foods.
Savvy developers like LAB Holding’s Shaheen Sadeghi are now focusing largely on artisan-driven retail — which is far less vulnerable to online business — that will also include housing and workspaces in cities across Southern California. LAB is working to revive a small-town, communal feel to once interchangeable and utterly predictable developments. In many cases, such as the Haven City Market in Rancho Cucamonga, the focus is less on traditional retail, with a greater emphasis on food and dining, something that Amazon may not be able to provide.
A Need for a Historic Compromise
California now has a unique opportunity to address its deepening housing crisis by combining some peripheral development with bold infill of retail space. This would replace the current doctrinaire “cramming” approach that clearly has failed to reduce prices or rents, and has made it increasingly difficult to build the single-family product preferred by the vast majority of consumers, including older millennials.
This transformation would be greatly helped if cities were given incentives….
Read the rest of the article at The Orange County Register.