In downtowns across the U.S., many office buildings are still shells of their former selves. Workers come into the office far less than before the pandemic, and companies are reconsidering their office real estate needs. As office building owners fret about lost rents and whether they’ll be able to pay back their loans, another wave of collateral damage is being hitting. On the ground floor of many of these downtown office buildings, retail space is feeling the effects of the vacancy rate in the floors above, and shops are cutting bait and moving out.
Some may see that as part of the feedback loop of a dying downtown, with retailers kicked twice by the rise of e-commerce and the hangover of the pandemic. But for Daniel Colombini, a principal at the New York City-based consulting engineering firm Goldman Copeland, the loss of one ground floor tenant really means an opening for another one. Just like emptying and unwanted offices are weighing whether they can be converted into new uses like housing, ground floor retail spaces are facing their own conversion question.
“As we’ve seen less and less brick-and-mortar dry goods retailers, the real estate market tries to find who else can use this space,” says Colombini, whose firm has found itself working on projects in many of these forsaken retail spaces. Increasingly, he says, the new users of these emptying retail spaces tend to be experience-driven businesses, like cafés and restaurants. A Gap or an H&M might move out, he says, but a café or a steakhouse is probably waiting in the wings to move in.
Making a retail space work for this kind of new use requires a bit of infrastructural surgery, Colombini explains. Take a hypothetical Gap-to-steakhouse conversion, for example: Going from a store that mostly deals in dry goods to a restaurant that’s cooking greasy food at high temperatures requires a slate of physical and mechanical upgrades. “When the Gap was getting built, we would put in some air conditioning and put the lights up. Other than that, the Gap’s just bringing their shelves in and putting the product on it,” Colombini says.
The space would need a lot more than air conditioning and lights to function as a restaurant. “Those heavy grease cooking establishments require tremendous amounts of electrical infrastructure, could require natural gas, and domestic hot water needs are high for dishwashing. The ventilation requirements are very high as well,” says Colombini. Large fans would be needed to move smoky, greasy air out of the kitchen, and filtration systems would be needed to clean that exhaust before it leaves the building and stinks up the surrounding area. Overall, it’s a substantial amount of change for what would have just been a big room with shelves full of jeans and sweaters.
“There is some upfront capital investment required,” says Colombini. “But it’s just that. It’s capital improvement to the building that makes it marketable, that makes it competitive.”
“If we’ve learned anything over the last 10 or 20 years it’s that these things change over time,” he adds. “Especially considering what happened over the pandemic, it can be difficult to predict who we’re going to need to be able to accommodate in our buildings and what our infrastructure needs are going to be.”
One option is to plan for a variety of possible futures. Colombini points to one anonymous project his firm worked on in a historic high rise office building in midtown Manhattan. (“If it told you what it was you would know of it,” he says.) The owners of the building decided a decade ago to upgrade all of the building’s ground floor retail space to accommodate not just the clothing shops and dry goods retailers they had at the time, but bars, cafés, restaurants, and experience-focused businesses they wanted to attract. When leases for their large ground floor retailers started running out and the spaces experienced turnover, the building was ready for a new type of tenant. Successful restaurants now fill some of those spaces.
“That capital investment early on pays dividends for decades,” Colombini says.
