Developers Look For Residential Retail Formula

Садовые Кварталы

Apartment blocks and town house communities should pay more attention to shopping habits, consultants say.

For some developers of upscale residential buildings, the question is not whether they should include retail, but exactly how much. With ideally located shops and charming boutiques, they can woo an apartment buyer who is looking for a certain cache and willing to pay for it. That translates into higher profits for the developer.

The real estate consultancy Cushman & Wakefield is advising one developer of a mixed-use project including apartments, offices and retail. The question is, exactly what kind of retail. Maxim Karbasnikoff, a partner and head of retail services at the consultancy is spending two months looking at the retail market.

His team is examining the neighborhood's other shopping spots, the potential competitors, and its customer base, and will then determine whether the retail element should be a handful of stores or an entire shopping center. "We are working on currently defining what will be the ideal size," Karbasnikoff said in an interview.

Though residential retail has been around since Soviet days, the newest incarnation combines trendy shops, convenient mobile stores and groceries and chic cafes. In Moscow's Khamovniki neighborhood, an exclusive cluster of apartments called Sadovye Kvartaly, or Garden Quarters, is under construction. The residents-only complex will include a shopping gallery, cafes and restaurants.

Many middle-class Moscow dwellers are now interested in housing that helps them balance their working hours and personal lives. Karbasnikoff said retail is playing an increasingly bigger role for residential developers. Placing stores in an apartment building "definitely adds value to the overall atmosphere," he said.

Residential retail comes in different forms. It can consist of stores occupying the building's first floor, a distinct retail area attached to the apartment building or a small-format shopping center. Developers can use any one of those options "as an additional client-attracting feature that encourages apartment sales," said Svetlana Yarova, head of street retail at Jones Lang LaSalle.

"Residential retail is not very much attractive to developers by itself, but only in terms of financial benefits," Yarova said. The stores make the apartment complexes more resident-oriented, she added.

Jones Lang LaSalle helps retailers search for residential retail premises. Yarova said the best way to address a common demand on the part of residents, for a local spot where they can unwind after work,  is to create local mini-malls with the right mix: a supermarket, a food court or several cafes and restaurants, basic service shops and fashion retailers.

Adding stores to an apartment project isn't overly difficult, but neither is it a cakewalk, an analyst said. "You have to understand, what is the [retail] tenant mix that will, first of all, bring in money," said Mikhail Rogozhin, managing director of retail for CBRE in Russia, which currently doesn't have any residential retail consulting projects. Rogozhin said it is also critical to create a mix of retailers that will please residents.

Karbasnikoff said that the smaller the building's potential customer base is, the more the developer needs to focus on the daily needs of those customers. Figuring out the right formula requires thorough research during the planning stage of the project. "It makes sense to do it from the start, from the moment you do the development," said Karbasnikoff.

That means conducting focus groups as part of the overall planning. "To make a mini-mall popular with the [local] residents, first, developers should conduct special surveys studying the main pedestrian flows in order to choose the right location," Yarova said.  Then they have to study customer preferences and take into account their requests for certain goods, she said.

Rogozhin suggested an additional approach: using customer preferences to get leverage with particular consumer goods chains. The developer has a good offer for McDonald's, for example, if 75 percent of residents want McDonald's to be in the building, he said.