September 11, 2024

How Retail and Office Work Together

By ICSC

Leasing space near retail outlets has become a bigger priority for office tenants that want to attract and retain talent or lure back remote workers. “The retail and food-and-beverage surrounding office has become a significant driver of desirability,” said Adam Showalter, managing director of Stream Realty Partners’ national office investor services. “It has become a major topic of conversation in the [site selection] decision making process.”

Retailers, meanwhile, benefit from the return-to-work push by office occupiers. According to the Real Estate Board of New York and Placer.ai, total mobile device visits at 350 Manhattan office buildings this past July reached 15.2 million, a 10% year-over-year increase. Midtown Manhattan office visits that same month hit 80% of the 2019 pre-pandemic baseline, the organizations said, and A-plus properties rebounded to 93% of that prior benchmark.

The surge is driving restaurant and retail foot traffic across the Big Apple, said Javier Lezamiz, Cushman & Wakefield senior managing director of asset services for New York City and Long Island. “You can see it, just walking the [central business district] corridors in morning, lunchtime or even the evening rush.”

Office-Retail Hotspots

Smaller office occupiers, of 15,000 square feet or less, including tech start-ups, are among those that are most focused on lively settings with ample retail, Showalter said. The trend helps explain why mixed-use districts like East Austin in Texas, Fulton Market in Chicago, West Midtown in Atlanta and South End in Charlotte, North Carolina, boast “significantly outsized demand” for office space, the executive noted. “The majority of the time, these tenants have made a strategic, thoughtful research decision to move to a true mixed-use environment, whether it’s a West Midtown or a Fulton Market or a Wynwood/Design District in Miami,” Showalter said. “They narrow their search based on that decision.”

According to Cushman & Wakefield, office development in Charlotte’s South End from 2019 through the second quarter of 2024 totaled more than 3 million square feet, a 132.8% increase in overall inventory. Notable new mixed-use and Design District projects in South End include 110 East, The Line, Vantage South End and Lowe’s Design Center Tower. The average office rental rate for South End and Midtown hit a historical high in the second quarter at $46.81 per square foot, with the two areas’ combined Class A rates reaching $47.72. Those South End/Midtown rates were the highest of any submarket in Charlotte or the Carolinas, the firm said.

Talent Magnets

Stream Realty relocated its Chicago office to the Fulton Market District in part, Showalter said, because the mixed-use setting would help the national real estate firm better attract and retain young talent. The district is known for its historic, red-brick buildings and lineup of restaurants, bars, retail shops and luxury hotels, along with both corporate headquarters and “trophy” offices. “Fulton Market is the most active food-and-beverage submarket in all of Chicago,” Showalter said. “It has become a true live-work-play environment, which was conducive to the type of office location that we were looking for.”

In Cushman & Wakefield’s second-quarter office market report, researchers note that Fulton Market commands some of the Chicago CBD’s highest rental rates. The District’s average asking rent was $59.32 per square foot, with Class A reaching $69.85, by the end of the quarter. By comparison, the average asking rent for all office classes across downtown stood at $43.09 in the quarter. Fulton Market also posted a lower vacancy rate, 13.2%, than the broader CBD’s 25.2%.

The priority of appealing to young talent spurred Stream Realty to relocate its Atlanta operations to an office-retail hot spot, as well, in this case to The Interlock, Armada Hoffler’s mixed-use project in fast-growing West Midtown. “We found a development that had a lot of retail, as well as a hotel, attached to it,” Showalter said. “It checked multiple boxes for us.” Stream Realty also has brokered a deal for another office tenant to locate there. In August, it announced it had represented the manager of Encore, Georgia Tech’s 50,000-square-foot incubator space for start-ups there, in a lease with social media company Fanbase.

According to Cushman & Wakefield Atlanta, West Midtown’s population jumped 68% between 2010 and 2023, with residents between the ages of 25 and 34 making up the highest share of the population. From 2020 to the second quarter of 2024, direct asking rents grew 38.9% to $47.93 per square foot, researchers said.

In addition to the Encore incubator space, The Interlock is home to 150,000 square feet of office tenants, such as Innovien Solutions and Destination Sport.

The Interlock’s 105,000 square feet of retail, entertainment and dining include Puttshack, The Escape Game, Sandbox VR, Velvet Taco and Pour Taproom. The nine-acre property also boasts 349 luxury apartments, a 161-room boutique hotel called Bellyard and a 38,000-square-foot “rooftop experience” with a pool, restaurants and outdoor gathering spaces overlooking West Midtown.

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