Co-location, a solution to the pandemic’s impact on retail?

Key words: Agency, retail, shared space, time, management, innovation

Despite your ideological views the pandemic will continue to impact the economic climate in months and years to come.

In mid-May, J.C. Penny one of American’s cornerstone department stores filled for bankruptcy. This came just after retailer’s J. Crew and the Neiman Marcus Group filed, representing the biggest casualty amid US retail closures tied to the coronavirus (NY Times, May 2020).

A few months ago online retailers such as Amazon were only delivering “essential” items in the midst of the pandemic. Needless to say, international shipping universally had pretty much come to a halt at one point because of government restrictions.

In places that rely heavily on tourist populations such as Hawaii, the retail sector has been down by about 95% due to a very low rate of customers and cash infusion.

These are just some (of many) examples of the drastic change and upheaval the pandemic has caused the retail sector, real tangible impacts.

We could focus on the negatives, although I’d rather like to take a step back and think about this crisis as an opportunity for change. An opportunity to speak across differences, and different levels of power and rethink economic structures that have failed the test of the current crisis.

I am writing from an urban planning perspective, so this article is biased towards the tools we have as urban planners. Of course, monetary policy will always have a role to play in helping business get “back on its feet”. However, I’d like to see the agents of change shift to the players themselves- the landlords, tenants and end-users (the customers) – rather than from the top-down.  

That is people working together to assist with the recovery of the retail sector and activation of local communities.

To summarise, after the pandemic resides in economic and planning terms we will need to:

  • Create jobs (up to 1/10 people are forecast to lose their jobs in Australia, many more have already in the US)
  • Establish confidence in normal social human behaviours (connectedness)
  • Stimulate the economy via innovation and growth

To bring it back to my home country (Australia) the Government is asking commercial (retail) landlords reduce rent (in good faith) in proportion to sales via waivers of rent and deferrals, that is to ensure retailers don’t end up in bankruptcy in the first place. Other governments around the world are asking similar things of commercial and retail landlords.

The problem here, in particular for the commercial/retail landlord, is a commercial property asset is only worth the amount of its rental return.

For the landlord that’s a bit scary as hypothetically if a tenant made no sales, that retail property would be worth near to nothing. And it appears as though the pandemic, and economic impact of, is not likely to disappear anytime soon.

You may think is this really a problem? Those landlords are already wealthy. But I see this as quite a serious issue. If it wasn’t for the risk-taking commercial landlords (and I’m not talking about the large shopping mall landlords such as Walmart’s, Aldi’s or Tesco’s). But your Mum and Dad commercial property owners, who are renting out space to the cafes, restaurants, shops, gyms at the heart of your local community: the activities that you love to be able to enjoy.

This is where the idea of colocation I think is pertinent.

Colocation is a term more commonly used by datacentres who share their space, although it is a concept that has been building momentum in urban planning over the past decade. Chicago Housing Authority have been leading the way in the development and leasing of some of their community projects where citizen-facing services such as libraries are shared with public housing developments integrating communities.

On a case by case basis colocated community facilities need careful agreements and leasing strategies. At a micro level, why can’t colocation be easily applied to retail leasing? The retail lease is seen as a traditionally clunky and highly legal document. We think a relaxing and more liberal approach to retail leasing would be a win-win for landlords and tenants (as well as the customers)

Hear me out.

Imagine you owned a commercial property (and you had a dance school as your tenant), but dance school hours are only certain times and periods of the day and week.

The dance school space is also a perfectly suited space for photoshoots or fashion pop ups. By leasing the space out also to say a photograph company you are efficiently using the space, keeping the rental costs down for the dance school (and the sublessor). And maximising returns for the local landlord, especially during times of crisis such as the one we are in. Yes, there are issues around security and cleanliness, but these can be designed in easily. Actually, I see this creating more local jobs i.e. the need for cleaners between interim lease periods.

Tenants would also split the cost of energy etc. This can be included in the lease.

Or say you own an office, with spacious tables and desk space, and coffee facilities. A typical office space is a traditionally a 9-5pm business. Instead of co-working spaces where we bundle a bunch of people together (how are WeWork surviving through this pandemic?). Could such business lease out their desk space to start-ups or businessmen/woman who need some space away from home for a few hours’ in the morning or at night? Even just a few hours away from the home can ignite a renewed sense of purpose and drive for your work- the segregation between live and work. Again, this would keep rents low for the tenants, but ensure commercial property maintains a real value and customers are happy because it’s nurturing innovation etc.

What are the planning implications?

I don’t envisage any problems with the lease if the sub lease use if in line with the current use of the space.

It’s just a matter of thinking a bit more efficiently, and with good management anything is possible really.

In fact, it is true that Sephora, the US cosmetics chain leased areas within JC Penney locations as a branding exercise to help the department store appeal to younger customers. This is a standing 14-year agreement between the chains.

It feels necessary to build and support local business and innovation rather than take away the provisions for it. It so sad to see more than ever so many vacant retail spaces. We need to make sure the types of spaces and uses that activate local communities exist!

Crises are typically times of innovation.

Cities are complex places, but there’s so much space out there in our cities and communities, let’s be efficient with our resources.

If you have some space and you would like to sublease, please contact me and I will add you to our data base.

caroline@carolinepembrokeconsulting.com

+61400 010 687

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