Urbanization transcends all facets of society: where we live, where we work, where we shop and where we choose to spend what little leisure time we have. Urbanization is also a very real global trend. Figures from the United Nations show that 54% of the world’s population now resides in urban areas, compared to just 30% in 1950. The figure is projected to reach a staggering 66% globally by 2050.
The implications for real estate could not be more far- reaching. However, the trend towards urbanization runs counter to the general tide of retail development in particular over the last 50 years, which has seen ever greater emphasis placed on out-of-centre destinations, be they food superstores, edge-of-town retail warehouses or regional shopping malls. In simple terms, retail facilities are increasingly located further away from where rising numbers of people are choosing to live.
This imbalance has thus far only partially been redressed. Mixed-use schemes have long been an industry buzzword and are increasingly becoming an urban reality, but they only scratch the surface of the opportunity. All too often, the reality of mixed-use developments is a substantial office and/or residential element, with a complementary but understated retail and leisure offer comprising a convenience store, a coffee shop and a couple of branded restaurants. There is nothing flawed in the basic psychology of marrying homes and workspace with retail and leisure, but the concept can be executed on a far larger and more ambitious scale.
The trend in urbanization also runs counter to many real estate planning principles. Real estate likes the order and logic of zones – CBD, shopping district, leisure circuit, theatre land, or cultural quarter, for example. However, true urbanization recognizes none of these artificially engineered boundaries and the utopia of urbanization is a melange of real estate facilities that goes far beyond mixed-use as we know it. A place left to the natural process of urbanization would combine residential, office, retail and leisure in a non-uniform environment. The order we have become accustomed to will not be replaced by chaos – rather, a sense of vitality and diversity which are pre-requisites for every successful location and indeed, a fundamental to retailing in particular.
What will the retail and leisure component of ‘urbanized utopia’ look like? The leisure element is more easily defined – a plethora of eating and drinking establishments catering for every price point and every international palate. The retail element is harder to classify, but will definitely go beyond a standard convenience-based offering. Expect high street multiples to feature heavily, away from their traditional shopping mall and prime destination homes. Contrary to hackneyed belief, the future of shopping is not online, but multi-channel. Urban store based locations as a seamless dovetail joint with digital capability could be the ultimate realisation of the often elusive multi-channel dream.
This ‘urbanized utopia’ is only at the very early stages of evolution. However, examples are emerging, unsurprisingly in areas that are heavily urbanized, land is in short supply and population growth is on an upwards trajectory. London certainly ticks all three boxes and good examples of urban centres of the future are already in evidence. Areas such as Hoxton and Shoreditch are blueprints as to how the modern urban quarter may evolve. Driven partly by creep of the City’s footprint, previously unloved and in many cases derelict warehouses and seemingly unclassifiable general commercial buildings have been given a new lease of life as residential blocks and trendy office spaces. The retail and leisure proposition has more than kept pace and the breadth of the offer caters for far more than the immediate resi and worker audience. Hoxton and Shoreditch are now leisure destinations in their own right, in a way which would have been unthinkable a decade ago.
Examples of thriving modern urban quarters are, of course, not restricted to London. Similar examples in the U.S. include the Meatpacking District in Manhattan, Williamsburg in Brooklyn, and Fulton Market in Chicago. Perhaps the best examples are found in the Far East, in cities such as Tokyo, Shanghai, and Hong Kong. It follows that conurbations with the largest urban populations are leading the way in the evolution towards urban utopia. In this instance, the West may have much to learn from the East.
URBAN NOT SUBURBAN
In Chicago retail, suburbia is losing its appeal
Written by Joe Klosterman, Research Manager, Newmark Grubb Knight Frank
A new development trend has emerged in Chicago that differentiates the current retail development cycle from those before. Annual deliveries have averaged less than 3.0 million sq ft since 2007, a rate less than half of the 15-year average and only 27% of the 10.7 million sq ft completed in 2006, when the last development cycle peaked.
As deliveries have receded, urban submarkets have captured a greater share of the market’s new supply. Since 2013, 49 urban developments have delivered a total of 3.1 million sq ft to the market, with another 2.7 million sq ft of product under construction or proposed. The development occurring in the city is smaller in scale and concentrated in the north side lakefront neighborhoods where there is an established residential population with higher earnings and education levels. This contrasts with previous decades, when big-box, automobile-centric construction dominated suburban submarkets, often preceding large scale residential development and population growth.
Over 1.0 million sq ft of new space will come online in the urban submarkets in 2016, and the trend is expected to continue as millennials and empty nesters choose to reside in the city. Developers and investors will follow suit, betting more of their capital on Chicago’s upscale urban neighborhoods.
SHARE OF NEW RETAIL DEVELOPMENTS