How Subdividing Commercial Spaces Could Help Cities
Photo by Brandon Mowinkel on Unsplash.
For several decades, major manufacturing cities have experienced shrinking populations. Counted among them is my city of Chicago. Since the 1960s, the population of Chicago has shrunk by 25%, with most of the decline concentrated on the city’s South Side (with a total drop of about 56%).
Alongside population declines, many cities have also experienced a steady decline in brick-and-mortar retail. Hit the hardest over this period have been department stores, suffering a 49% drop in sales since their peak in 2000. Chicago has not avoided this trend either. The amount of available anchor retail space here has more than doubled since 2012, according to the real estate service firm CBRE.
In light of the current pandemic and what could be a lengthy financial contraction, both of these trends—continued population decline in more impoverished neighborhoods, and across-the-board closures of major retailers—will continue, if not accelerate. Since the supply of commercial spaces can’t easily contract with demand, one possible way to weather the economic storm and promote recovery may be to repurpose vacant spaces by subdividing them.
The advantages of subdividing commercial spaces spring, of course, from shops being close to each other. And the benefits are not exclusive to customers but to shop owners and property owners as well.
Subdividing Commercial Spaces: Advantages for Consumers
It is clear to urban economists and those in related fields that consumers benefit from businesses being close to each other. The proximity of businesses allows shoppers to more easily practice “trip-chaining”—sequencing several stops in the most effective way to reduce commuting costs. In hard times, any small savings is welcome—and could mean the difference between purchasing a product or not.
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Subdividing Commercial Spaces: Advantages for Businesses
Businesses also receive a boost from being a part of a business cluster. There are at least four advantages to commercial clusters.
For one, clusters of companies can share intermediate input producers. For many producers, production costs are too high to meet a single firm’s demand. Only by being connected to several firms can the producer reach the economies of scale needed to be profitable and sustainable. The classic case of intermediate input sharing comes from work by Raymond Vernon (1972) in his study of button-makers. There are other advantages too, as described in A Pattern Language:
In our own time, Raymond Vernon has shown that small, scattered workplaces in the New York metropolitan economy, responded much faster to changing demands and supplies, and that the degree of creativity in agglomerations of small businesses is vastly greater than that of the more cumbersome and centralized industrial giants.
The second advantage comes by way of sharing a labor pool. Employee-sharing could be as simple as watching a shop when another shop owner steps out, combining errands, or even asking advice. More formally, employee-sharing might look like hiring someone from another company as a paid consultant or a part-time employee. All of this can result in more consistent income for property owners and businesses, as well as the more intangible forms of stability that come from being part of a community.
The last two benefits that come from business clusters are skill-matching and knowledge spillover (or knowledge sharing). Knowledge spillover is what it sounds like—the flow of knowledge between different firms and employees. Skill-matching is when firms help one another find workers with the exact skillsets they are looking for; they don’t have to settle for less or spend extra money on training.
Subdividing Commercial Spaces: Advantages for Property Owners
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Businesses that are part of business clusters can be more resilient, especially during economic downturns. This is obviously of great interest to property owners who need to keep their spaces productive.
When adopting a subdivision strategy, property owners gain not only a more resilient income but the ability to leverage the community of businesses under one roof. The entire space could be marketed to the public as a mini-mall with a focus on helping small businesses stay afloat. Marketing a property space as a mini-mall could attract both local small businesses and conscientious consumers who want to shop locally.
Buying or building residential or commercial buildings around subdivided space will continue to multiply the effects of economic clusters, which will separate these commercial clusters from just being a regular old mall. According to a Dutch study on the impact of footfall on shopping districts, when footfall doubles, rental rates go up by roughly 15%. Continuing to invest in the area can lead to substantial gains if this relationship holds in Chicago.
The subdivided space also can function as a laboratory to test what composition of businesses and amenities best attracts patrons (and increases income). This experimentation can be done at a much lower cost that can later be applied to other spaces. Larger spaces rented out to a single occupant do not allow for the same level of experimentation.
All in all, property owners who adopt a subdivision strategy gain the benefits from the resilient community that forms in their spaces. These communities can be leveraged, marketed, and improved in both good and bad times. As we face continued population decline in Chicago and elsewhere, as well as economic recession, subdividing space is one viable tool for growth.
Cover image via Chris Dickens on Unsplash.
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