Mixing It Up in the Suburbs
SAN FRANCISCO—Wouldn’t it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Meet Ms. Real Estate.
Have a question for Ms. Real Estate? Click here, and it may appear in a future column.
Dear Ms. Real Estate:
My 250,000-square-foot shopping center is located in a highly developed, close-in suburban location. The location has added a great deal of midrise multifamily rentals and condos within the past ten years. I’m in the process of updating the center, and would like to know what mix of uses should I be targeting for?
—Mixing It Up in the Suburbs
Dear Mixing It Up,
Your letter specifically indicates your center is located in a densifying, close-in suburb, which puts it one good step ahead of most suburban centers.
Over the past two decades, there has been a nationwide trend in which those regions with strong economies have been densifying their central cities and close-in suburbs. Nearby public transit options make it easier for both commute and non-commute trips, and employers who require a young professional labor base find it easier to recruit the skills they need in high-amenity urban activity nodes (or hubs).
I cannot provide you with a one-size-fits-all recommendation. In order to identify the most financially rewarding product mix, you will have to undertake a market study that probes for the demographic characteristics and shopping, entertainment and lifestyle priorities of the households in the mid-rises. You cannot get the demand model you need just from comparables.
While comps provide a very good picture of historical trends, they are much less useful in predicting the future – particularly one that is undergoing rapid change. You don’t want to be the last one on a follow-the-leader bandwagon.
In order to identify the appropriate product mix, you need to obtain answers to the following questions for those residents living within your market area.
- Over the past ten years, what has been the growth rate of the primary demographic groups—pre-Baby Boomers, Baby Boomers, X’ers and the Echo Boomers?
- What percent of the above demographic groups have sufficient income to rent or purchase in a new building?
- When #1 and #2 have been identified, you can make use of recent comparables to see which products have been most successful in renting or selling their product. It would be advantageous to employ a real estate marketing firm or have members of your staff speak with the management of these buildings to ascertain what the primary attractions are, as well as mistakes they wish had not been made
- Lastly, you will need to ascertain the amount of current and anticipated competition for the most desired product types, through your planning department or economic development departments.
- Once you have identified the most appropriate market niche, you will have a leg up on the type of retail and service tenancies that can best serve your future renters or buyers, as well as those residing and/or working within a reasonable trade area.
I hope the above helps. I would have liked to have provided you with a clear and direct answer as to the most appropriate product type. But Ms. Real Estate just isn’t that smart.