Why There’s Reason for Optimism in Urban Retail

Downtown office’s struggles have been one of the major stories of the post-pandemic era, as the new work-from-home and hybrid realities have resulted in fewer commuters downtown. That drop in foot traffic has put a strain on retail margins. As for the larger urban retail picture?

“On the surface, retail market fundamentals are relatively solid, suggesting the retail market is in a promising recovery position once the economy rebounds, consumer confidence continues to improve, and retail sales expand,” says Gary Baragona, Kidder Mathews VP of research, based in Kidder Mathews’ San Francisco office.

And while the different West Coast markets are facing their own set of challenges, some patterns — as well as room for optimism — are emerging.

Why Retailers Need to Adapt to Downtown Challenges

The story of urban retail goes beyond reduced foot traffic and store closures. It’s caused Portland, Oregon’s CBD to undergo a dynamic transformation, notes Caryl Bentley Brown, Kidder Mathews VP. Rising costs and demographic shifts have put pressure on local businesses, and the visible presence of homelessness affects both the perception of safety and the overall atmosphere of commercial districts, she says.

According to Brown, Portland retailers are adapting to evolving consumer preferences, shifting economic landscapes, and socio-cultural dynamics: “Understanding these challenges is crucial for residents to support local businesses, engage in community initiatives, and participate in discussions aimed at revitalizing and sustaining urban retail in Portland.”

Double-Edged Demographics

Not surprisingly, people power largely determines whether a CBD is steady or struggling. While the high cost of living and the lack of affordable housing has pushed many would-be workers to the suburbs, according to Monica Wallace, Kidder Mathews’ EVP in Seattle and director of retail, downtown has seen record tourist visits. A revitalized waterfront and an expanding light rail system have boosted both consumer demand and worker supply.

Jason Miller, Kidder Mathews FVP, reports that retail gross sales are “stronger than ever” on the Seattle waterfront and in Pike Place Market. He notes this is part of a pattern with urban areas that have a larger residential population and/or healthy tourism businesses faring much better.

Michelle Schierberl, Kidder Mathews SVP in Orange County, sees what is being considered for a retail location.  “Downtown locations with visibility and pedestrian traffic to the retailers target market, the affluent consumer, will command a strong rent to reflect the access to that consumer.” Not so much for the downtown markets that are in decline or perceived as a safety risk. A suburban location might even prove to be a better fit.

Outlook

For urban retail, the greater economic backdrop will continue to be a point of caution. Baragona says that many retailers expect retail sales to slow, based in part on consumers curbing discretionary spending and rising consumer debt. In some markets, downtown retailers will likely have a difficult time balancing profitability and safety concerns without hindering the overall customer experience.

Sustainable downtown retail vibrancy ultimately depends on factors beyond its control, Miller says. “Whenever inflation comes down and office workers return to the office is when we will start to see some improvements.”