Ken K. Hira is the President of Kosmont Companies and International Council of Shopping Centers (ICSC) P3 Retail Advisory Board Co-Chair. Kosmont Companies advises public and private sector clients on a wide range of real estate and economic development projects. Mr. Hira brings 30 years of diverse experience in acquisition, entitlement, development, financing, asset management, disposition, downtown revitalization, and strategic plans. Mr. Hira has a keen understanding of retail and land use trends. We asked him to discuss the trends that he has been observing lately, as well as some key strategies to recovery from the COVID-19 challenge.
What are some of the recent land use trends that you’ve observed?
The overarching trend that we have seen lately is the shift toward Blended Use projects that integrate a variety of asset classes into vibrant villages and destinations. For instance, many cities are exploring ways to reimagine struggling shopping centers and shopping malls often stuck with too much underutilized space, vacancies from store closures, and lower foot traffic as a result of e-commerce. The re-imagination of retail means introducing other land uses such as residential, office, and hospitality into a new community driven ecosystem that cater to today’s consumers and digital natives. Even industrial is seeing a blended use trend, as retail and industrial uses increasingly rely on each other for fulfillment in our digital economy. I like the term “Blended Use” better than Mixed Use because it emphasizes the importance of integration.
How has COVID-19 disrupted these trends?
In certain ways, COVID-19 catalyzed the trends that we were observing in recent years. It feels like a decade’s worth of change was accelerated in the narrow span of 2 months! In retail, traditional shopping malls and their mostly obsolete anchor tenants may not survive this downturn; rather, the innovative and entrepreneurial will survive—if not thrive—in a post-COVID world. Certain types of retail had a pre-existing condition, if you will. Similarly, office complexes will go through a reconfiguration, as firms decide to shift the balance of time employees work-from-home vs. office, with one impact being lower-density office environments. The “winners” that come out of this challenging time will be vendors that provide the retail essentials that consumers rely on as long as they also have an internet presence, and ultimately, once the consumer believes it’s safe enough to patronize, the destinations that provide consumers with stimulating experiences, likely with new social distancing and health protocols. Oh, and, of course, we would normally have been at ICSC RECon in Las Vegas about this time of year but we have to adapt with the use of technologies to participate in virtual meetings, watch webinars and network online from home… the omnichannel show must go on!
Which land uses are proving to be most resilient, or are poised to come out of this challenge stronger?
Industrial real estate, long considered a rather noxious land use relegated to the fringes of our communities, has proven to be the backbone for the new digital economy, and has been rather resilient through this downturn. As e-commerce and delivery demand grows in our “doorstep” economy, fulfillment centers and last mile facilities have become even more important and can be sales tax generators for cities when the right economic development “value capture” tools are applied. For future resiliency, some firms may “re-shore” some of their manufacturing and shift from “just-in-time” to “just-in-case” inventory management, providing greater demand for industrial spaces near urban centers. Finally, the growing big data needs of modern work-from-home employees will provide even greater demand for data centers.
What is the key strategy for cities and property owners during the Coronavirus slowdown?
Collaboration and Flexibility. Both the public and private sectors need to think outside the box for solutions to problems, and that means working together and being open to unprecedented trends. For example, developers and property owners could partner with cities on sales (and hotel) tax revenue solutions as they struggle with budget gaps and cities could relax restrictive codes or create economic development lending programs to allow small retail businesses / restaurants to still operate during the Great Shutdown. CDBG and EDA grants can serve as some funding sources. It’s time to reset short term expectations as projects and timelines will inevitably evolve and plan for mid and long-term future value capture.
How can cities pull through this challenge?
Cities should first understand that we are in the middle of a land use revolution and recognize that their recovery action plan needs to identify and apply new strategies and tools. Each city needs a good assessment of their current situation – an understanding of tax revenues, budget requirements, and market changes especially as related to private sector investment activity and preferences. Cities can review administrative policies and process zoning changes that can quickly provide more flexibility to the private sector. Importantly, cities can evaluate funding and financing tools like POBs to sustain long term economic health. Some other advice includes assessing general fund reliance on sales vs TOT vs property tax revenues and diversify as appropriate going forward. Also, analyze strengths and weaknesses and identify target projects and opportunities. Right now, it’s important to focus on projects; still, having a plan and knowing the right direction to go in is equally important.