The development of residential buildings on under-utilized shopping centre land is no longer just a trend but has become the reality in the real estate sector these days.
More and more projects are coming together where big malls are finding the benefit of building more density on their properties.
The latest is CF Lime Ridge in Hamilton where Cadillac Fairview, the property owner, intends to build two 12-storey towers with 320 residential units as it also redevelops former Sears space in the mall.
Cadillac Fairview would not comment on the proposal but offered the following statement by email.
“Cadillac Fairview is pleased to confirm that we will be meeting with the City of Hamilton’s Design Review Panel to present our plans to backfill the former Sears space while adding new rental residential development in the adjacent parking field at CF Lime Ridge,” said the company.
“We believe that this new vision, which includes retail and residential space designed to enhance pedestrian connectivity, will strengthen the centre’s role as a vibrant, regional destination and we look forward to progressing these plans with the City.”
“Many people took the time during COVID to go out and get the approvals necessary to add such density to their shopping centres. We’re seeing it across the board. We just did a call with our Capital Markets group and they were saying that every shopping centre that’s being sold these days across the country, there’s a valuation or portion of valuation that is attributed to how much density could be put on the site,” he said. “Can they add an office building? Can they add residential? Can they add seniors?
“The beauty of adding residential is obviously that it comes with people and people are good for shopping centres and all of a sudden you’ve got a massive amount of people living above your retail and that’s good for the retailers.
“The downside is that it takes away parking space. It’s not always as easy as it may seem. There are old leases in a lot of these shopping centres in favour of anchor tenants that say I will have this much parking and I will have a corridor to the main highway or the road. Unless those retailers are prepared to give those rights up, which a lot of them aren’t always exactly willing to do so, it’s not always as easy as it can be.”
Sanderson said many of the shopping centres have excess parking space on their properties. Also public transit is better today and those sites are better serviced for consumers.
“One of the contributing reasons as to why it makes sense to densify these sites is the simple fact our retail is not overbuilt in this country. So a lot of these shopping centres are great dots on a map. They’re either centrally located or if they were built on the edge of town the town has now grown around them,” he said. “So they’re very attractive pieces of real estate and you can’t go and get those anymore. Adding residential or density, it’s almost like it’s a no brainer.”
For property landlords, it’s also a smart move to diversify their portfolio so they’re not solely reliant on retail for certain properties.
“Part of the trend we’re seeing is a shift towards rental residential,” said Sanderson. “The beauty of a shopping centre site is that one landlord or one group owns it and they lease it out. Once you build a condo tower you don’t own it anymore. There is a demand in the market these days for upscale if you will from what we’ve been used to in the rental residential market. Renting that out leaves you the landlord that flexibility.”
“That is happening because the value of the shopping centre from a cultural, social and commercial point of view is declining precipitously. And the reason for that if we sort of peel back the layers of the onion is because (smartphones) came along and essentially in concert with the internet became so many of the things that the shopping mall used to be,” said Stephens. “It used to be a gathering spot. It used to be a place where you go watch movies and entertainment. It used to be a place where you go and have a meal. And certainly used to be a place where you would start most of your shopping journeys.
“So in a remarkably short period of time, technology has stepped in to replace many of those social and commercial functions. Kids today meet online. They don’t hang out at the mall. So developers have this quandary of what do we do? We’ve got a core asset that’s declining in value. We’ve got a lot of asphalt that’s surrounding it that is hardly ever completely utilized. So how can we try to pump some value back into this as a real estate asset if nothing else?
“And we create a resident population that begins to use the mall to a greater extent because it’s essentially right in their backyard.”
Stephens said it makes sense to take empty real estate and make better use of it and create a higher value asset.
“My problem is we go back to Victor Gruen and the inception of the shopping centre. His vision was never just to sort of create a commercial environment and plunk consumers into the midst of this purely commercial environment where all you do is go there to shop,” he said. “His vision is that this really becomes the centre of a community, that it becomes sort of a cultural asset for the community, a place to gather and have great experiences. I think at its inception he even said to go see art and enjoy music and all kinds of different cultural things.
“This is a short-term measure that I understand intellectually but it doesn’t address the elephant in the room and the elephant in the room is the shopping centre. It still needs to be reinvented. It still needs to be reimagined from the standpoint of the truth that retail can no longer be the draw. If the fact, you have an Apple store, and a Nike store and a food court, if that’s an idea, that’s just not a sustainable value proposition for consumers. So they need to rethink this to become a place where you go to be entertained, to dine, to gather, a social environment, it really needs to become almost an entertainment and hospitality venue.”
Stephens said by building up and building out, property owners are increasing the scale of the real estate asset as well as increasing the market value of the asset. They’re also transferring the asset focus from being purely a retail, commercial focus to becoming residential. It takes them into an entirely different real estate class.
“The side benefit is you’re creating a resident population. You’re essentially replicating, if you will, a few blocks of a downtown core where if you live in that development that’s where you do your grocery shopping, that’s where you go to the tailor, that’s where you go to the shoemaker – all the things that people in cities have done for hundreds of years,” he said.
“So to an extent you’re really replicating a slice of urban life in the suburbs – a sort of suburbia 2.0. And it also I think fills an important need right now in many Canadian cities and that is a sensible level of density. We need greater density in most Canadian cities to provide housing for this enormously growing population.
“But to build resident population around a fundamentally decaying business concept, being the shopping centre, isn’t good enough in the long term. The shopping centre itself has to be reinvented.”
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