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The Ticking Time Bomb for Suburban Retail

Lightning-speed deliveries and autonomous cars could accelerate the current big-box implosion.

Thanks largely to the rise of e-commerce, chains like Macy’s, Toys “R” US, and Best Buy are shuttering faster than analysts predicted even a year ago, with at least 24 major retailers planning store closures in 2018.

According to some forecasters, there’s an even larger retail apocalypse on the horizon. As overbuilt malls, corporate mergers, and autonomous vehicles converge, “the ingredients are in place for major disruption,” said Rick Stein, the founder of Urban Decision Group, a Columbus, Ohio-based planning consulting firm.

Speaking on a panel in Portland, Oregon, on Monday, Stein made the case for which commercial areas will suffer most from new consumer habits mingling with technology: car-oriented suburban retail.

Already, American retail is overbuilt by about 50 percent, according to Stein. With about 24 square feet per capita, the U.S. has by far the most retail space of any country in the world, with about 25 percent more than the next closest country, Canada. (That’s data from the publicly traded real-estate group GGP and the financial blog Zero Hedge.)

While megamalls and luxury shopping centers in more affluent areas have fared better, mid-sized to large “regional” retail centers and strip malls, of which there are about 7,500 across the U.S., are struggling most with vacancies and declining profit. States like Nevada, Arizona, Virginia, Ohio, and New Jersey have some of the most overabundant big box and strip mall properties, and they’re increasingly overexposed as more Americans shop online and take advantage of fast delivery speeds.

Those speeds are getting faster. Already, Amazon offers a two-hour “Prime Now” delivery service for about 25,000 retail items to Prime subscribers in at least 30 U.S. cities. In some of them, including Columbus, customers can pay for delivery speeds of one hour and faster. “One-hour delivery, for every U.S. market, is inevitable,” said Stein, and possibly within a few short years.

Which online retailer will be the first to standardize blink-of-an-eye delivery? First to mind is Amazon, especially with its recent acquisition of Whole Foods giving it a real-estate foothold in nearly 500 locations near affluent households. Or maybe it’s Walmart, with its 5,000 locations and strong presence in more rural communities. “Their reach is absolutely insane,” said Stein, speaking at Urbanism Next, a conference about autonomous vehicles, e-commerce, and the sharing economy hosted by the University of Oregon.

Maybe Amazon won't be the first to crack lightning-speed delveries. (Stein/Study/Robbins)

Or perhaps it’s CVS. Some 82 percent of the U.S. population lives within a 15-minute drive of its 11,000 locations. With the trend for corporate mergers and acquisitions, companies like these (and many others) are gaining real-estate footholds at a rapid clip. What if, for example, Amazon absorbed CVS as its widely anticipated move into pharmacy business? Such a prize would also set the company up with a convenient “hub and spoke” network for snap-of-the-finger deliveries in virtually every U.S. urban market. Stein illustrated the notion with a slide of the Columbus region.

Imagine the delivery speeds a company like Amazon could achieve with more acquisitions. (Stein/Study/Robbins)

This is all theoretical. But, no matter which corporate giant flips the one-hour switch first, or when, real-world retail is likely to suffer a major blow once it’s that much easier to shop from home. Working with Jason Sudy and Justin Robbins, two other Columbus-based planning consultants at Side Street Planning and OHM Advisors respectively, Stein developed a working model that predicts the developed commercial properties most vulnerable to revenue loss and closures. Using data from InfoGroup, Price Waterhouse Coopers, and Forbes, the model weighs several factors, including location, the mix of retail in the area, population density, homeownership rates, income, the age of the structure, amount of parking, and household expenditures in metros around the U.S.

Different development patterns are more susceptible to vacancies and flipping than others, the model shows—especially when layering on the eventual arrival of autonomous vehicles. Self-driving technology stands to drastically reduce parking needs, cheapen delivery costs, and easily convey shoppers to locations they actually find desirable, such as walkable downtown areas where shopping feels like more of an “experience.” Those are the kinds of commercial areas that will likely weather this coming retail storm, according to the model. Worst off are car-oriented suburban strip malls and big-box stores, with huge swaths of these properties devoted to parking.

“In markets like Columbus, which are already ready to deliver tons of stuff fast, overbuilt retail space might not die out in a slow atrophy,” said Sudy, who co-presented at the panel. “It could be a calamitous collapse.”

That could mean a lot of highly visible retail blight right along suburban highway corridors. And, more importantly, it paints a worrying financial picture for communities that lean on retail for badly needed tax dollars—not only from the lost stores themselves but also from the potential devaluation of surrounding properties. In the Columbus metro region, roughly four percent of gross leasable area is in the “most vulnerable” category—i.e., the easiest to flip to vacant (or something else), according to Stein, Sudy, and Robbins’s estimates. In their maps, shown below, red is most susceptible, and green is least. If all of those properties flooded the real estate market at once, land values would be flipped on their heads. “Already, we don’t collect enough taxes to pay for fire service, the infrastructure, and all the stuff we have to do,” said Sudy. To take an even worse-off city, in Atlanta, six percent of GLA is ripe to flip.

Commercial vulnerability in Columbus, Ohio. Red is worse, green is better. (Stein/Study/Robbins)

Stein, Sudy, and Robbins’ presentation focused mostly on Columbus where they are all based. And their model is just that: a model. It’s based on an imperfect mix of data, and a number of assumptions about the future—for example, that AVs will be uniformly adopted at all, without other interventions from transit agencies or other technologies. For example, drones could be an equally disruptive force as autonomous vehicles. Also, one-hour delivery might not be as close as Stein believes. “We don’t really know what the next five years will look like,” said Kelly Rula, a panel co-presenter who recently took a job at the Seattle Department of Transportation to work on new mobility, climate, and urban freight issues, after working on last-mile delivery for Amazon Prime.

Even without AVs, though, it’s pretty clear that a storm is brewing. With taxable land already over-allocated to retail and parking, changing shopping habits, and ever-faster delivery, self-driving cars will only accelerate the changes already happening. And communities aren’t necessarily prepared for what’s here, let alone what’s ahead: more empty buildings, a harder economic punch from the lost retail, and heavier road impacts of increased goods delivery.

At the very least, new developments should be future-proofed against blight and hits to tax revenues, said Robbins. “Don’t build any parking garages you can’t adapt to other uses,” he said. “Create internal grids and roadways on large new developments, so that you can fill in as things change.” To ease transportation impacts, Rula said, cities could follow Seattle’s lead by studying goods movements, testing dedicated loading zones and sensor-enabled curbs, and looking at road pricing to mitigate added deliveries, in addition to human trips.

Communities might also start considering how to reuse all that vacant retail space coming online. The sprawling malls of suburban America are turning into graveyards of its former retail kings—big grey boxes with ghostly logos etched onto the front. Could they be turned into housing? Data centers? Museums of a time before Amazon?

If nothing else, Stein said, cities anticipating and preparing for the future are more likely to come out as winners. Those who aren’t—perhaps by dint of their economic inability to plan ahead—could be choking on the fumes.

“Technology is like water,” said Stein. “If you don’t channel it to where you want it to go, it spills all over the place.”

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