Office & Retail

Written by  //  March 9, 2011  //  Other Land Uses  //  No comments

Office Retail Title

Retail is commonly found mixed into office developments in urban areas, typically at the ground floor and basement level. Retailers are willing to provide a rental premium over what office tenants would pay for the same space. In addition, on-site retail is an attractive amenity for office workers.

The integration of retail and office is not restricted to downtown areas. Older suburban regional malls are now searching for ways to boost revenues by adding office towers above or next to existing retail.

Unfortunately, the majority of office-oriented retail projects are poorly executed. Consider the characteristics of a typical development:

  • Busy at lunch time, empty on weekends
  • Easy to access internally but poor external visibility
  • Relatively few fashion retailers
  • Confusing circulation system with awkward internal spaces

The fundamental problem plaguing office-oriented retail is that they sit under massive office developments where retail was an afterthought for developers. Huge supporting columns and building cores bisect retails spaces, and small land parcels lead to poor internal circulation. With such a large office population sitting overhead, retail is going to function at a basic level almost by default. Why interact with the street front when your customers are already inside?

This mentality on behalf of office developers is exactly why retail in these situations almost never takes full advantage of the affluent customer base literally sitting at its doorstep. Spending surveys conducted by the International Council of Shopping Centres found that many of our retail purchases are done during the work day or on the commute home. For every $1 spent on lunch and dinner, another $3.2 is spent on other types of retail categories.

In our increasingly time poor society, catering to office workers will become ever more important. Huge opportunities exist in urban areas for mixed use retail and office developments, but it is critical that retail be weighted equally to office during the planning stages.

Office Worker Customer Profile

Office space found in most mixed use projects are B or A class, while that found in street environments may be closer to C or B class. Regardless, office workers can be expected to have a relatively high personal income compared to city averages. Despite this higher income, many of the industries found in A class space are male dominated, which has negative implications for retail spending.

Major retail purchases of household goods will rarely be made alone by the office worker. More often, the decision is made by (or with) their spouse away from the office.

Female fashion retailers also suffer in these environments. Even if the office building has a critical mass of female shoppers, it will not have enough retailers to allow proper merchandise comparison.

Office workers are severely time poor and are willing to pay a premium for convenience.

Office hours mean that office-oriented retail will be empty in the evenings and on weekends. This gap in spending makes it unfeasible for many brand name retailers to operate in these environments.

For retail which is supported by both residential and office worker spending, a strong influx of customers at lunch time is a major benefit. Without office workers, retail would be relatively quiet in the middle of a weekday.

Merchandise Types

In North America, the most common merchandise types include:

  • Upscale Small-Format Grocery Store
  • Convenience Store
  • Dry Cleaning, Florist, Travel Agency, Insurance / Banking and other services
  • Pharmacy
  • Office Supplies
  • Business Fashion Retailers
  • Mobile Phone / Small Electronics Store
  • Jewellery Store (if external visibility is possible)
  • Cafes, Fast Food, Casual Dining Restaurants, Restaurant / Bars

Location

For lunch time spending, office workers will rarely travel more than a few minutes of walking or driving time. For comparison retail products, office workers are willing to travel slightly further but convenience still is a major influencing factor.

Having retail located within the same building is an attractive amenity for office tenants. Unfortunately for retail, having offices directly above can be a designer’s nightmare. Strategic planning can create successful designs, but the challenges of servicing and internal circulation are compounded in such a constrained environment. Some mixed use projects handle these issues by locating office buildings immediately adjacent to, but not directly within, retail areas. This allows separate entrances and removes challenges created by the office building structure.

In smaller walk up developments and on urban retail streets, office space has fewer negative impacts on retail layout due to fewer structural and servicing requirements.

Financial Impact on Retail

The following figures are meant to show the potential impact of office workers on retail spending. These figures (North American) are rough estimates that must be scaled for multiple variables including regional context and local office worker demographic attributes.
The average office worker in North America spent approximately $146 per week on all types of retail in 2010.

Office Worker Retail Spending by Merchandise Category

Convenience Retail: 30%
Comparison Retail: 42%
Food & Beverage: 24%
Entertainment: 5%

Based on 49 working weeks per year and industry wide sales performance figures, the total amount of floorspace supportable is estimated at 19.4 ft2 per office worker.

Supportable Floorspace by Retail Category per Office Worker
Convenience Retail: 6.2 ft2
Comparison Retail: 6.9 ft2
Food & Beverage: 2.9 ft2
Entertainment*: 1.2 ft2
*Entertainment includes alcohol expenditures which are associated with food & beverage spending.

The above figures are the total amount of supportable retail floorspace generated per office worker, not the amount that any specific project can hope to achieve. The specific capture rate is entirely dependent on local context, and many office-oriented retail projects would be more than happy to take in only a 1/3rd of on-site office worker spending.

About the Author

Reurbanist

Reurbanist is a multi-disciplinary firm that blends land use economics with urban planning and economic development. At its core, Reurbanist believes that great urban places that are compelling and vibrant must find success at both a fiscal and social level. Stronger cities and urban destinations translate into improved job growth, municipal tax revenue, and a higher quality of life for residents.

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