The last two years have been eventful, to say the least. Through the changes, one thing remained incredibly clear to me–human beings have an innate need for community. But, while the sense of community that you develop in an office environment is important, what I missed the most was the community that I hadn’t realized I depended upon so much–like the barista at the coffee shop who knows my name and order the moment I walk through the door. The security guard who nods as I walk by him on my way to my car with my salad in hand. The friendly welcome from a fitness instructor whose class I have taken before. The community that only a retail environment can provide. It is organic, and it affects the way that you live your life without you even realizing it.
I knew as soon as I decided to pursue a career in commercial real estate that I wanted to become a retail subject matter expert. More specifically, I became a student of the way that retail directs community and directly drives property value. The retail on the ground floor plane has a direct correlation with the community that surrounds it, whether it is office and apartment rents upstairs or home values due to proximity to a particularly desirable intersection. On a practical level, ground floor retail at the base of an office tower can impact a valuation and can mean the difference between transacting at a 5 cap or transacting at a 6 cap. The presence of a mixed-use component will drive the cap rate down because that’s what these sophisticated investors are looking for. Similarly, in residential areas, home values can be directly tied to the proximity of the retail that surrounds them. Imagine Highland Park without Highland Park Village or University Park without Snider Plaza. Property values become a reflection of the retail that grounds them, and communities formulate in the surrounding areas accordingly.
Retail is creative, but retail also creates. Rewind several years to the Design District before Ascension Coffee, before Meddlesome Moth, before Carbone–to streets that felt unapproachable except to the designers who frequented them. As a result, developers focused on other, more straightforward areas of town. Thankfully for us Dallasites, Mike Ablon deeply understands the power of retail, and he created a space for Ascension Coffee and Meddlesome Moth to “hold hands and jump in together,” and they have been incredibly successful. Retail begat retail, and now the Design District is home to some of the most prestigious restaurants in Dallas. Ablon simply offered retail that appealed to a sense of community, and within a matter of years, the Design District has become a sought-after location for retail and residential alike. A community was created, and it can directly be traced back to, you guessed it, retail.
Unlike office buildings or apartment units, which can be fairly interchangeable from one block to the next, each retail space provides a potential tenant with a new opportunity. The height of the storefront glass, the location on the block face, the tenant across the street…each and every aspect of a retail space changes the experience of the customer entering that space. The complexities of this positioning game are what lead to interesting and unique community environments. Retail is one of the few asset classes where the unexpected can be beautiful and positive – take, for example, the intrigue of an unexpected recessed corner of a restaurant. This is truly a favorite aspect of my job – where some people see a problem space, I see the opportunity to pretend I’m an architect, a designer, a restauranteur, an employee, and a customer. Retail not only allows but encourages my creative side.
The value that retail can provide is manifold. Successful retail tends to lead to higher rental rates in all of the surrounding properties, regardless of asset type. Young professionals gravitate to these areas, yielding a stronger employee base that attracts new major employers. But there’s a keyword there – ‘successful.’ Retail has to be successful for all of the above to be affected. And at the end of the day, that creates the moments that I know are so important – the sommelier who suggests a wine I might like, the waiter who starts my appetizer as I am seated, or the boutique owner turned client and friend. Retail has the ability to weave the very fabric of a community.
Elizabeth Herman Fulton is a vice president in CBRE’s Urban Group.