The return to urban living by the ever-influential millennial population is acting as a catalyst for a continued increase in urban retail development. Interest in large, “midtown” developments is on the rise, in large and small markets alike. These projects are typically mixed-use properties containing office, residential, retail and entertainment uses and aim to serve the needs of the latest onslaught of urban dwellers.
Martin Smith, senior vice president and market leader in SRS’ Birmingham office, has experienced this trend first-hand. “I have seen a huge uptick in mixed-use, midtown-area development, even here in the South,” he said. Developments including Midtown Miami, Midtown Hattiesburg, and Atlantic Station in Atlanta are prime examples.
According to the Smith, the primary driver of this trend is lifestyle choice. “People in the age range of Gen X-ers to the newer Millennials are looking for more of an experiential lifestyle. They believe that settling in the suburbs does not provide the experience-driven life they need. Urban living does provide this,” he explained.
Indeed, according to the U.S. Census Bureau, metropolitan areas with 5 million or more people saw double-digit population growth rates in their downtowns during the last decade. The National Association of Realtors recently noted that “between 2010 and 2013, primary cities with populations of 100,000 or more outgrew suburbs each year — 1.05 percent to 0.95 percent in 2010-11, 1.13 percent to 0.95 percent in 2011-12 and 1.02 percent to 0.96 percent in 2012-13, according to an analysis of metros with populations of one million or more by William Frey, a demographer with the Brookings Institution.”
Another driver affecting the surge in urban residential growth, according to Smith, is the downturn in the economy when the “Great Recession” turned many people off to the traditional idea of home ownership. “Young people no longer feel the pressure to own a home with the proverbial ‘white picket fence.’ They prefer to rent and keep their options open,” he said, continuing, “There is no risk of losing equity if you rent. In fact, in many instances, rents are considerably more expensive than traditional mortgages. The fact that today’s multi-family environment is so amenity driven, coupled with the experience of being in an urban market, seems to override the fact that rents have become so expensive.”
Another “midtown” development is 20 Midtown in Birmingham, Alabama. Currently being developed by RGS Properties and Scott Bryant & Co., 20 Midtown is located in the midtown area of Birmingham, directly between the CBD and UAB Hospital and Campus. The project will consist of three buildings totaling 400,000 square feet of space and will include retail, restaurants, office and multi-family lofts. The project will be anchored by a Publix grocery store. Chipotle and Starbucks have also signed leases for space in the property.
Planning for 20 Midtown began seven years ago when the developer approached Publix to locate in the development, but Publix was not interested. According to Smith, “At the time the property became available, and my client (RGS Properties) took control of it, there was not much going on, but the project was always well positioned between the two main traffic drivers in the downtown area.”
In 2009, the city announced plans for a new park to be situated near the property, followed a couple of years later by the announcement of planned construction of a downtown stadium for Birmingham’s Double A baseball team, the Birmingham Barons. “They were moving into town from the suburbs,” said Smith, adding, “All of a sudden the midtown market became abuzz with activity and my client controlled a key piece of property.”
Having been declined by Publix, Smith and the developer moved forward with a plan to create a boutique-scale, multi-level mixed-use project with apartments and approximately 10,000 square feet of retail and restaurant space. Starbucks was interested from the start as the project could provide the opportunity for a drive through in an urban environment. “No sooner did we engage in negotiations with Starbucks when Publix came back to the table with genuine interest in the site,” said Smith.
The developer reworked the site plan to accommodate Publix and began to immediately search for adjacent land to accommodate Starbucks and the other tenants who were expressing interest. The developer was able to tie up the entire city block across the main street from Publix and another quarter block at the same intersection.
The midtown area of Birmingham has since announced approximately 1,600 new apartments to be built within walking distance of the site, the developer is over-subscribed in terms of LOIs for prime space in the development, and they are presenting working on additional opportunities to buy and develop more land in the midtown market.
According to Smith, leasing the project has met with some challenges. “The primary challenge has been to get the retailers and restaurants to buy in to the reality that the market is changing and that people are coming into the urban markets to live and enjoy the lifestyle that urban living brings,” he explained.
To that point, Downtown Birmingham is experiencing a marked increase in urban residential units with the aforementioned 1,600 residential units on the drawing board. According to David Fleming, CEO of REV Birmingham, downtown’s residential growth has increased 36% since 2000. The result? Increased need for an interest in downtown/urban retail projects.
Construction issues have also challenged the leasing process. Smith stated, “Most of the fast casual tenants are used to cookie cutter spaces in the suburbs, with a parking field in front of the space and venting through the roof. We are having to be much more creative to satisfy the construction needs of the tenants, the developer and the various government entities, while also providing rents that work.”
Despite the challenges, 20 Midtown is experiencing a flurry of interest by retailers and restaurants who are beginning to see that the urban market is changing and growing at rates outpacing suburban population growth.