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Retailers Take Note As Population Preference Shifts From Suburbs To Cities Opportunities For Transit-Oriented Development Abound In The ’Burbs

By Richard Pilla

As Published in Banker & Tradesman March 21, 2016

It’s been all over the news lately; companies traditionally located in the suburbs are increasingly relocating to the cities, primarily to attract a larger labor pool – in particular the Millennials, who, as the Boston Globe recently noted, “have no interest in the burbs, or even own a car.”

Rather than deal with long morning and evening commutes, the younger demographic wants to be able to walk to work, do their shopping, or take in a movie or a comedy club, and then walk a few more blocks to meet up with friends for cocktails and/or dinner.

For Millennials, 78 percent of their discretionary expenditures are on entertainment. Apparel is secondary at best. Specialty shops of all kinds are opening and doing well. As for restaurants, cafés, and other food and beverage options, Millennials and other urban dwellers are supporting and demonstrating loyalty to local, independent businesses. This is true for ethnic groups as well, in particular Hispanics. It is now commonplace for local, independent coffee shops to have higher sales volumes than their chain competitors.

Although Internet purchases are up as a percentage of sales, brick and mortar stores are doing higher sales volumes. After all, we are social beings and there is no substitute for being around other people.

Then there is cost. Cities are extremely expensive to operate in, and the real estate is more challenging because of things such as a lack of loading docks. There is no question that retail is reinventing itself, mostly out of necessity. Retailers are adapting to smaller spaces and carrying smaller inventories, in part to reduce overhead.

Boston is one of the hottest cities in the country. All one has to do is drive or walk around the city to see that construction cranes are everywhere. While there is development in the suburbs, in the cities there is redevelopment. Both areas are seeing an increase in mixed-use projects designed with multiple kinds of spaces, which is driven to a large degree by economics, but also by consumer demand.

The situation is not unique to Boston. I was in the company of colleagues from across the Northeast at a recent forum in New Jersey, and this very subject garnered a good amount of attention. This suburb-to-city migration is transforming the retail landscape in most major American cities. Among the changes is a steep rise in rental rates. For example, space that leased for $30 to $40 per square foot in Philadelphia’s Center City is now fetching $100 per square foot. Urban areas are also seeing an increase in mixed-use development, including housing designed specifically for the 55-plus demographic. In downtown Baltimore, 1,250 new condo units came online in 2015 and another 7,000 are in the pipeline.

Transit Options In The Suburbs

As for the suburbs, I believe that although the pendulum appears to have swung the other way, they too will continue to prosper. Not everyone is making a mad dash for the cities. However, suburban towns need to get serious about competing with the cities if they want to retain their young population and assure there will be tax revenues in the future to support municipal services. After all, Massachusetts’ population is not getting any younger. The suburbs are still less expensive than the cities and couples raising families still prefer them, largely because of the better school systems.

Transit villages are a suburban concept that have been with us for quite some time. An excellent example of this is Brookline’s Coolidge Corner, perhaps the oldest transit village in the country, and it continues to thrive. For those Millennials who cannot afford the price of Boston housing but want convenient access the city, transit villages would be a good alternative. Perceptive and forward-thinking towns need to get serious about creating an environment that can address these “quality of life” questions, and much can be done in the towns that have commuter rail access. Transit villages is not a new concept, but I believe it is ready for its next phase, this time with a greater emphasis on residential density with the amenities today’s consumers are looking for.

What does all of this mean for the future of retail in the suburbs? One thing is for certain: retailers and the people who design and develop for this sector – at least the good ones – will listen to what the consumers are saying and adjust accordingly. Retail is constantly evolving and retailers understand that they have to sometimes reinvent themselves if they wish to remain viable. The same is true for developers of retail space.