Mixed-Use Zoning Is Leaving Street-Level Storefronts Empty. It Doesn’t Have To Be That Way

As multifamily owners adjust their projects to accommodate work-from-home tenants, one might expect the ground-floor retail in mixed-use buildings would stand to benefit from tenants spending more time at home. 

But these storefronts still face many of the same challenges they did before the pandemic, according to industry executives speaking at Bisnow’s Annual Multifamily Conference.  

“Nothing is self-sufficient. It has to be needed in its community,” LPA Design Studio Director of Mixed-Use Matt Winter said of mixed-use properties. 

Property owners and developers say cities require these street-level spaces in residential mixed-use projects without ensuring that there is retail demand in those locations to support such space, leaving them notoriously vacant. 

Trammell Crow Co. Vice President James Holt lives in Downtown LA, and he said that when he walks around, he frequently sees market-rate buildings with empty street-level storefronts. 

“That is the result of cities being inflexible with zoning and their development standards,” Holt said. 

TCC has a major project underway in Los Angeles: District NoHo. It received approval in late 2023 to build the massive transit-oriented mixed-use project around the North Hollywood subway station with 1,500 rentals, 450K SF of offices and 60K SF of shopping and food and beverage space. It is unclear how much of that space is ground-floor retail under apartments. 

Developers have seen success stories for first-floor retail spaces. 

CIM Group Managing Director of Development Oliver Baker pointed to an opportunity his firm had taken with a project in Silverlake to use its retail as what he called a “brand differentiator.” CIM’s 41-unit apartment and retail project landed a very buzzy tenant, the high-end specialty market Erewhon, known for $17 smoothies and pricey health food. 

“That Erewhon is, for better or worse, aspirational and draws a certain type of residential tenant to the building,” Baker said. “You can create a symbiotic relationship if you have the ability to do [mixed-use] well.”

But not every neighborhood needs an Erewhon, and not every mixed-use property can support retail. Some cities are starting to understand that, panelists said, and are giving greater flexibility via the planning process for those properties to adjust the uses of those ground-floor spaces when they prove difficult to lease. 

Holt saw firsthand that this flexibility is possible while working on a mixed-use project in a smaller San Gabriel Valley city. The city wanted TCC to build ground-floor retail, but in the entitlement process, it said that if the retail space couldn’t be leased up in a certain period, the developer could then convert that space into live-work to “recover some of the value they’d lost by having empty ground-floor retail.”

Torti Gallas + Partners senior principal Neal Payton is working on a project at the Montclair Metrolink station where a similar flexibility has been built in. If the ground-floor retail isn’t leased in a year, it can be converted into residential space. 

“Retail has to be logical in a place,” Payton said. “Don’t expect retail to work because you have a bunch of new housing and so somehow those people are going to patronize retail. Because they might patronize it, but it’s not going to be enough.”

The next wave of mixed-use development might not be so dependent on ground-up market-rate projects and could look more like sprawling mall properties adding residential and other uses as a way to address an evolving retail landscape. 

Across Los Angeles, various mall redevelopment projects have consistently sprouted up to keep prime properties relevant by tinkering with the mix of uses on the site. 

Earlier this year, Trammell Crow Co. bought a 5-acre site in the Northridge Fashion Center mall to build 350 rental units on the property. Construction is expected to start next year and wrap up in 2027, The Real Deal reported at the time. 

The Puente Hills Mall, famous for its cameo in the 1980s classic Back to the Future, sold to LA-based developer RCB Equities and Newport Beach’s Real Estate Development Associates for redevelopment, but the extent of that redevelopment was unclear.

Hines Managing Director Rebecca Strom said there are some exciting unknowns that still have to play out with these projects, including any potential knock-on effects that residential or other uses such as hotel have on the storefronts.

“I really am hopeful that we’re going to see truly integrated products and not some multifamily on the periphery, in the parking lot,” Strom said.