Title
Vacant Commercial Storefront Properties
Description
This report provides the Workforce and Economic Development Subcommittee with information regarding vacant commercial properties and opportunities for repurposing these sites.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
Summary
At the direction of the Workforce and Economic Development Subcommittee at its March 24, 2021 meeting, City staff have collaborated to provide an overview of vacant commercial properties and opportunities for repurposing these sites.
Over the past several years, there has been a downward shift in commercial properties that has resulted in rising vacancies. Prior to the COVID-19 pandemic (pandemic), the retail market was undergoing dramatic changes that were already leaving many commercial properties vacant. Changes such as advances in shopping technology, retailers/brands that have become irrelevant, and general shifts in consumer shopping behavior and preferences. Examples include the rise of the bargain retailer; consumer conscientiousness of environmentally friendly brands; a shift of focus to health and wellness and minimalist lifestyles; cult following of brands, and the need for “Instagrammable” and experiential spaces have all affected the retail market. Retailers unable to accommodate these changes began to struggle and fell behind.
The pandemic exacerbated the issues struggling spaces were already experiencing. Retailers were forced to close and further change how they do business. Forced advances in technology from e-commerce competitors greatly affected businesses that did not have the technological advances nor funding to pivot and compete with online retailers. Restrictions placed on in-person shopping and services further placed constraints on retailers that depended on their brick and mortar space. Issues such as these ultimately forced the permanent closure of many businesses.
The average U.S. retail square footage is 28 square feet (SF) per capita; however, in Phoenix, the average is 40.5 SF per capita. Maricopa County zoning patterns established a 300-foot swath of commercial zoning along arterial streets, thus Phoenix was built on the premise that each neighborhood should include four corners of retail resulting in the City becoming over-retailed. This has further hindered struggling properties making them irrelevant over the past decade as too much retail on one intersection cannot be supported financially. It should be acknowledged that some properties built just for retail, will never be suitable for retail again. As neighborhood needs change, there are redevelopment opportunities that have presented themselves in the form of conversions to affordable housing, mixed use projects and schools.
Considerations
Many older buildings are good spaces but cannot be used due to infrastructure requirements that are not cost effective as well as site and building issues such as no certificate of occupancy, asbestos mitigation and lack of sprinkler systems, which are a requirement when repurposing older un-sprinklered retail buildings. For example, the work that accompanies a fire sprinkler system includes an underground fire line, fire backflow preventer and a street tap. These are costly items and often deter redevelopment efforts, causing spaces to remain vacant for long periods of time. However, updates and improvements such as these can open up possibilities, as they increase the allowable area of an occupancy without changing the building’s construction.
Properties with large contiguous space otherwise known as "big box" properties are recognized by the Community and Economic Development Department (CEDD) as buildings that are 20,000 SF and larger. Phoenix's big box inventory includes 38 properties totaling 4.8 million SF. Of these big box properties,19 buildings are currently vacant. It should be noted that some of these spaces are currently under redevelopment and are acknowledged and actively marketed by landlords. Uses such as funtertainment concepts, fitness/health and wellness, e-commerce/fulfillment, temporary (seasonal) tenants, store within a store concepts, and niche retail have occupied big box spaces.
Big box retail buildings are an "M" occupancy classification and are designed under the unlimited building area provisions of the building code. Often, many proposed reuses of big box buildings are for a new Assembly use "A" occupancy. Unlike the retail use, allowances for an assembly use in an unlimited area building are very restricted in the City's building code. This may require retrofit of fire walls or improvement of the building’s type of construction which can also be very costly. Change of use also triggers sprinkler requirements and other potential modifications to meet City code standards.
Furthermore, some retail properties are so distressed they need to be partially or completely demolished and/or rezoned to make development feasible. Failed malls are a testament to this as properties such as Metrocenter Mall at approximately 1.4 million SF, add to vacancy numbers. Successful mall redevelopments, such as Park Central Mall are an example of the potential uses that can go into underutilized mall spaces.
State of the Phoenix Market
Phoenix's retail inventory is approximately 69 million SF. Current retail vacancy sits at 8.3 percent compared to six percent pre-pandemic. According to Statista, a leading provider of market and consumer data, the national retail vacancy rate is 20 percent, a combined average that includes malls and strip centers.
Aged shopping centers that were already experiencing high vacancy rates, known as “struggling centers,” are recognized by CEDD as shopping centers which contain at least 25,000 SF of total retail space and are more than 25 percent vacant. The City's current shopping center inventory is 409, totaling almost 34 million SF. Of these, 28 shopping centers are considered “struggling centers.” There are instances of overlap with big box vacancies in which a single center could have two big box retailers equaling a high vacancy rate. The large square footage of vacant malls further adds to vacancy numbers as they are considered shopping centers as well.
Filling vacant spaces is a high priority for CEDD as they actively capture, market and assist vacant property owners when marketing Phoenix to investors, site selectors and brokers. Additional efforts include:
- Mapping of vacant big box/shopping centers.
- Vacancy monitoring of overall retail inventory.
- Conducting regular market research to stay on top of retail trends and learn about innovative retail tenant concepts and redevelopment projects.
- Marketing materials for up-and-coming and struggling areas.
- Regularly attending community business meetings to understand community wants and needs.
- Working closely with the City's Planning and Development (PDD) and Neighborhood Services departments (NSD) to support small businesses and large retailers when vacating a space or locating to Phoenix.
- Working with the Phoenix Police Department, PDD, and NSD to revitalize neglected areas of the City.
City Assistance and Legal Considerations
Legal rulings such as CityNorth and Schires v. Carlat have placed limitations on assistance the City can offer for private development. However, developers have access to the following City programs that can assist to support redevelopment:
- PDD's Office of Customer Advocacy (Adaptive Reuse Program).
- PDD's Permit by Inspection Program.
- PDD's Self-Certification Program for large buildings. A noted example includes, Chompie’s, a full-service restaurant in business since 1979. The owners are in the process of relocating one of their restaurants to a former vacant big box center at the northeast corner 32nd Street and Cactus Road. This Chompie's location will be open within one year of beginning the Self-Certification Program process, even during the pandemic.
- NSD's Neighborhood Commercial Rehabilitation exterior enhancement program.
- Other NSD Community Development Block Grant (CDBG) funds.
- Historic Preservation Conservation Easements. Notable projects include: MADE Art Boutique; The Van Buren; and Welnick Marketplace.
- CEDD Development Agreements to assist with public infrastructure and open space.
Ideas Moving Forward and Next Steps
Although legalities limiting City assistance exist, the following proposed ideas can assist to provide opportunities for repurposing of vacant space:
- Expanding the Adaptive Reuse Program.
- Expanding federal CDBG programs, where feasible, to help with revitalizing struggling properties.
- Exploring options to create an economic incentive program utilizing federal American Rescue Plan Act funding, or other sources to facilitate redevelopment of parcels/buildings that cannot meet City building code requirements.
- Working with community groups to help them understand that there is too much retail land use; and provide education on viable alternatives to revitalize these properties.
- Continuing Business Attraction efforts with investors, site selectors, brokers and retailers.
- Exploring General Fund/Bond support for replacing aged infrastructure to support revitalization.
- Exploring text amendment(s) to create opportunities for additional mixed-use opportunities above what is allowed with current zoning.
- Analyzing potential updates to the zoning ordinance to address changes in market demand for newer service models such as cloud kitchens and retail fulfillment centers, for instance.
Concurrence/Previous Council Action
On March 24, 2021, the Workforce and Economic Development Subcommittee requested this topic be discussed at a future meeting.
Department
Responsible Department
This item is submitted by Deputy City Managers Ginger Spencer and Gina Montes, and the Community and Economic Development, Neighborhood Services, and Planning and Development departments.