Residential & Retail
Particularly in the past two decades, residential has increasingly been incorporated with retail developments. On-site residential benefits retail by providing an immediate source of retail sales. Conversely, the per square foot selling price of residential in many mixed use projects is above that of those in single use developments (particularly in a suburban context).
Generally, however, residential is mixed with retail for two primary reasons:
- Planning regulations in urban environments which require at-grade retail
- Desire by developers to pre-sell residential to provide upfront cash flow and therefore reduce borrowing costs
Mixing residential and retail provides some cushioning for cycles in the market by hedging bets – at least in theory. Unfortunately, a mixed use project is a strong as its weakest link. Empty ground floor retailers negatively impact the project overall. In the recent condo boom numerous towers had their ground floors sit empty for months. Retailers just were not able to pay the high rents developers were hoping for to justify construction costs. In other cases, store units were not appropriately equipped and sized to handle suitable retailers’ needs. When residential developers start building retail, the initial results are often poor.
Moving away from the site, retail projects should almost always be located in areas with relatively developed residential populations. There is a saying that “retail follows rooftops” which still holds true. While some percentage of sales will come from outside the immediate trade area, the majority will originate from local residents in most projects.
Residential Customer Buying Patterns
Residential customer spending patterns vary by affluence level, but there are certain trends which can be found in retail around the world. Residents that live directly adjacent to a store will shop differently than those who live further away. This pattern has been recorded in various studies – a notable one was done by Ruth Steiner for her PHD dissertation. Her research on neighbourhoods in Berkley shows the decline in frequency of shopping trips by distance, as well as the types of purchases made by category. Products like convenience goods tend to be bought closer to home, while shoppers are willing to travel further distances for comparison products.