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Local governments must be proactive to save dying shopping centers
American shopping centers may soon see more foot traffic than they have in years.
4 Min Read
American shopping centers may soon see more foot traffic than they have in years. The reason, however, will likely have nothing to do with a huge holiday sale or the opening of a new anchor store. Rather, many of these retail sites are being completely reimagined as owners and local governments are recognizing that by working together, they can make these once-vibrant sites viable again.
Shopping centers, of course, have been in decline for the past decade, during which more and more specialty retailers filed for bankruptcy and even long-established names like Sears, Lord & Taylor, and J.C. Penney dramatically downsized or went out of business altogether. E-commerce can be at least partially blamed for this, but COVID-19 turned a slow but steady downslide into a tsunami as unprecedented numbers of consumers sent e-commerce sales into the stratosphere and even more traditional brick-and-mortar retailers into insolvency.
All of this has left jurisdictions around the country facing mounting problems. Retail closings don’t simply mean job losses and rising unemployment. They ripple through the entire community. When locals are out of work, they don’t have the money to dine out or make discretionary purchases, which ultimately hurts other businesses in the area. For shopping centers, that translates into reduced foot traffic, even more shuttered storefronts, and worst-case scenario, the entire facility closing, leaving behind a decaying façade and empty parking lot, both of which are magnets for trash buildup and increased crime.
For their part, local governments cannot afford to wait until shopping centers are seeing rampant store closures in order to act. Government, after all, is dependent on the viability of its retailers to generate sales and property taxes. Less (or no) sales mean fewer tax dollars, which eventually takes a toll on the jurisdiction’s ability to provide adequate public services. With that in mind, local governments need to be proactive.
First and foremost, jurisdictions should be in contact with shopping center owners at the first sign of above-normal vacancies. Retail vacancies obviously occur from time to time, but if an unusually high number of storefronts are being boarded up and parking lots stand largely vacant, there is clearly a problem which local government can work with the owners to address before the situation gets out of hand. Proactive communications also provides insight into the owners’ short- and long-term plans for the space, enabling government to formulate an appropriate response.
Local government should also consider commissioning a market analysis and parking occupancy study for a shopping center experiencing retail fallout. These will provide vital information on the current state of affairs (consumer characteristics, market segmentation, gaps in current retail, parking usage patterns, etc.), as well as possible opportunities that might be exploited in the future.
With this information in hand, local government can work with shopping center owners and/or potential investors to determine whether the site is still viable for retail and, if not, what other uses might be considered. Creative solutions for repurposing shopping centers run the gamut from rehabbing existing stores to make them suitable for business or medical offices to transforming large sites, such as former anchor stores, into experiential spaces designed to attract more people to the area. If the shopping center still houses sufficient retail, constructing secondary commercial spaces (such as urgent care centers or standalone fast food outlets) or adding apartments or condos along the periphery of unused portions of the parking lot represents another option.
These studies can also lay the groundwork for local jurisdictions to grant variances that step back standardized parking mandates requiring retail parking to provide five spaces per 1,000 square feet of space. Similarly, local governments can relax zoning and permitting requirements so that owners or investors can refurbish existing spaces more rapidly or designate spaces for more unconventional uses, including living spaces, self-storage, warehouses or even e-commerce fulfillment centers.
Finally, local government must be willing to provide financial incentives in the form of innovative grants, affordable loans, or access to state and federal financing programs, such as New Markets Tax Credits and Opportunity Zone financing, needed to support repurposing. In those cases when no private investment is forthcoming, local governments might consider turning to land banks to fund the purchase of a troubled shopping center. These government-backed or quasi-public entities, typically used to acquire derelict homes and lots through tax foreclosures, enable government takeovers with an eye to reselling the property to investors willing to redevelop it.
With new shopping apps launching regularly and even traditional retailers like Montgomery Ward finding new life online, it is clear that e-commerce is going to continue to take a bite out of the revenues generated by brick-and-mortar shopping centers. Given that inevitability, jurisdictions can’t afford to sit back and hope for the best. Doing nothing is a recipe for disaster. Rather, local government needs to be proactive in recognizing whether shopping centers are continuing to flourish. If they’re not, the roadmap to repurposing once-vibrant retail spaces to meet evolving community needs is readily available. The time to act is now.
