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The Value of Adding Street-Front Retail Space to Apartments

Street-Front Retail Space

Digested from “Do First Floor Retail Spaces Pencil Out for Multifamily Developers?”
National Real Estate Investor (3/15/16) Anderson, Bendix

More apartment properties than ever are including retail spaces on the first floor, responding to the growing desire of renters to live near shops, grocery stores and bars — and their willingness to pay more for such amenities.

“The trend for the last five years and the next five is that people want to live in walkable, active neighborhoods,” says Hans Nordby, managing director for CoStar Group, a research firm.

Local zoning officials are encouraging this trend, although the challenge for apartment developers is to build retail space in a neighborhood that attracts lots of shoppers. A retailer based in an apartment building can’t solely depend on the people who live in the building to support its business.

For developers looking to include first-floor retail space into an apartment property, a few thousand feet just won’t cut it for renters, according to Greg Willett, chief economist for MPF Research. “In general, 10,000 to 20,000 square feet of ground-floor retail in an apartment community of 300 or so units usually does virtually nothing. That’s not enough retail space to make the apartments meaningfully more attractive,” he says.

Any street-level commercial space should be flexible to accommodate a variety of needs. “The neighborhood is going to look a lot different in 10 years. It may behoove them to build flexible space,” Nordby says.

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