Mix it Up with Mixed-Use Facilities

Oct. 25, 2010

Don’t let retail be an afterthought in your mixed-use facility.

Retail should be considered an integral part of your operations – as much as your office spaces or residential units. As a highly visible focal point, retail needs to be in-line with your property's branding. "The retail has to be synonymous with the image and the identity that you're crafting for the building," advises John Ferguson, senior vice president of Golub and Company. "It can't be diametrically opposed because then those two forces work against each other. You'll always be trying to fix one or prop up the other."

In 2007, Golub and Company gained ownership of the John Hancock Center in downtown Chicago. Located on Michigan Avenue and a dominant part of the city's skyline, the Hancock building is an established property that draws thousands of visitors a year.

When the Hancock was purchased, Golub had the opportunity to create a vacancy from an underperforming retail tenant. With no immediate replacement, Golub required a business that could attract customers while reflecting the Hancock's reputation. "We needed to find a replacement tenant worthy of the character of the John Hancock Center and with a rent that would be accretive to the value of the space," explains Ferguson.

Ralph Ireland, chief development officer with Steiner and Associates, praises this judicious approach to leasing. "Don't fill space just to fill space. The retail should be commensurate with the direction you need to take the property. It needs to work for more than just 9 months. Just because a tenant will lease the space and pay the rent you're asking doesn't mean they're going to be a good tenant for you in the long run."

Establish the Players
Understanding area demographics is fundamental to ensuring successful retail. Regardless of location or property size, you must look to the surrounding community and determine who has the purchasing power and what their spending habits are, advises Ireland.

This is particularly crucial for new mixed properties without an established brand. Glimcher Realty Trust storyboarded who they anticipated their main clientele to be, explains Michael Glimcher, president and CEO. One of its recent developments, the Scottsdale Quarter in Arizona, caters to those with a 30s mindset. The company determined its customers would be fashion-forward, lead active lifestyles, appreciate a variety of cuisine, and be technologically savvy. Based on this outline, stores such as H & M, Nike, and Apple were recruited. The property also offers a sushi restaurant, a local coffeehouse, a yoga studio, and a high-end grocery store.

In contrast, the Hancock's location supplies two prime demographics – revolving foot traffic from Michigan Avenue and those that live and work in the immediate vicinity. To satisfy the front door constituents, retail must capitalize on the Magnificent Mile's prestige. "Michigan Avenue offers a natural, inherent capacity for buying power from locals and tourists. It's very attractive to the large retail tenants, particularly Best Buy, Cheesecake Factory, and North Face," says Ferguson.

Intrigued by a new concept unveiled by Best Buy in New York, Golub approached the electronics retailer to see what it could offer a downtown commercial setting. A dramatic departure from its suburban locations, Best Buy crafted an upscale format to its product line, marketing, and sales approach. The company based the model on a demographic that values time as much as money.

This population also represents those who come in daily contact with the building. Ferguson estimates there are over 2 million people in the immediate 6-block radius that live, work, and play in the shadow of the Hancock. "Because we have a million square feet of office tenants and 500 residential units, we have to be thoughtful of the fabric we create," explains Ferguson. "How does the retail relate to the in-building surroundings and our immediate neighbors? We have multi-million dollar family businesses and multinational corporations that want to feel that our retailers can satisfy their needs from time to time – whether it's banking, lunch, or an enjoyable mix of retail." Businesses like a full-service Chase Bank, Jamba Juice, and Aveda target the Hancock's regulars.

Find the Right Mix
One of the most successful formats for retail at a mixed-use facility is to give consumers a destination experience. They must be compelled to make return trips. Their spending habits won't make a difference if you can't get them through your doors. Glimcher recommends forgoing stale, cookie cutter models and offering customers a one-of-a-kind atmosphere. "You need to offer an experience to give people reasons to be there that they can't find anywhere else. It's about exclusivity and critical mass."

While experiential marketing can be an important draw, the more permanent strategy is to let the combination of your retailers do the work for you. While traditional department stores are still a staple, try to inject some flair into the mix with local, specialty, or new businesses. "Don't just look for the fifth store in a particular market – look for the retailer that's not in the market at all. Recruit 'first of its kind' retailers, whether it's new to the area or a new concept. Try to find the retailers that are growing," recommends Glimcher.

This can only be achieved by being selective about filling leases and taking the time to properly evaluate potential tenants. For example, the Hancock currently has one vacancy, yet it occupies a paramount location – on the pathway to and from its public observatory, a major tourist attraction. Golub is carefully investigating offers to ensure a future retailer carries the right touch. "The space is very valuable – we're not in a hurry to fill it with somebody who doesn't make sense so we're willing to wait," says Ferguson. The company is hoping for a business that can provide an aesthetic touch, such as a florist, yet serve the needs of tourists and tenants alike.

Capitalize on the Physical Property
Don't forget to anticipate how your physical building can cater to a strong mix of retail. How will you handle storefronts, column spacing, and layout? Convenience and flexibility will go a long way in overcoming any building limitations. Urban locations are dense, active, and intense, says Glimcher. How can you make this attractive and accessible?

One method is to work closely with retailers on layout and avoid prescriptive approaches or stipulations that may discourage retailers. "The more you make it flexible for the retailer, the better. The more constraints you place gives you another hurdle to getting a lease signed," says Ireland. "Most national retailers aren't willing to go away from their prototype." A great location may not be enough to draw a retailer if too many parameters are given.

It is also beneficial to allow retailers to implement their own marketing strategies, particularly when it comes to originality. Forcing businesses into uniform designs and signage loses a personal touch that may have attracted you to them in the first place. "Allowing creativity in the storefront is important. The individuality of the tenants adds spice to the overall property. We want it to feel organic. And tenants appreciate this approach," explains Ireland.

Organic is an apt description for retail and mixed-use buildings. It invokes a sense of cultivated growth that results in a natural, pliable selection of offerings – precisely how you want your retail to operate.

Jennie Morton is assistant editor of BUILDINGS.

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About the Author

Jennie Morton

A former BUILDINGS editor, Jennie Morton is a freelance writer specializing in commercial architecture, IoT and proptech.

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