The Decline of the Five-Day Commute Is a Boon to Suburban Retail

The Decline of the Five-Day Commute Is a Boon to Suburban Retail

The Decline of the Five-Day Commute Is a Boon to Suburban Retail

By Kate King

A growing number of retailers in city office districts are relocating their businesses to the suburbs, where visits to shopping centers are on the rise as fewer people commute to downtown workplaces. 

With average office usage rates still only around half of where they stood before the pandemic in many major cities, many bars, restaurants and other retailers that cater to the five-day-a-week office crowd have been reeling. 

Pedestrian foot traffic in U.S. urban downtowns was down about 25% in April compared with the same month in 2019, according to real-estate software provider MRI Springboard. Nordstrom’s announcement last week that it was closing two stores in San Francisco was the latest sign of retailers’ discontent with declining sales and rising property crime in big cities.

“I think we’re in for quite a challenging time for downtowns and for retail in downtowns,” said Diane Wehrle, marketing and insights director for MRI Springboard.

Some restaurants and retail businesses are now moving from their once bustling urban locations to the nearby burbs. Several restaurant chains have expanded beyond office corridors since the pandemic, including salad shop Sweetgreen, which closed several locations in Los Angeles, Boston and New York City last year. While the firm said it isn’t abandoning cities, as of last summer, half of Sweetgreen’s footprint was in the suburbs, up from 35% at the end of 2019, the company reported.

Suburban landlords say demand from retailers was strong during the first months of this year, even with high inflation and rising interest rates. Shopping-center owner Site Centers reported record-high leasing in the first quarter, while owner Phillips Edison reported a new high for occupancy. Retail Opportunity Investments Corp. said its portfolio is more than 98% leased.

Even high-end enclosed malls, which were hard hit by the pandemic, are showing signs of improvement. Foot traffic at Simon Property Group’s malls is higher this year compared with 2022 while overall occupancy was 94.4% in the first quarter, just shy of prepandemic levels, according to the company. 

The swelling crowds at suburban stores, in part, are coming at the expense of city retailers. In the second half of last year, urban retail availability surpassed suburban availability for the first time since at least 2013, according to real-estate firm CBRE. Asking rent growth in the suburbs also outpaced urban areas last year.

“You’re seeing retailers of all types look to go to some of these suburban centers,” said retail analyst Dana Telsey, who runs Telsey Advisory Group. 

One of these retailers is Dig, a fast-casual eatery founded in New York City in 2011. Until the pandemic, the restaurant largely catered to office lunch crowds in Manhattan, Boston and Philadelphia, said Chief Executive Tracy Kim. 

The business was hit by the pandemic and shift to remote work, and a few of its locations in New York closed permanently. Now, Dig is opening restaurants primarily in the suburbs and in residential neighborhoods of larger cities, rather than office districts. 

Over the past few weeks the company has opened locations in Stamford, Conn., Bridgewater, N.J., and in the Washington, D.C., neighborhood Georgetown. Dig plans to open three more this year, one in Brooklyn, N.Y. and two in the D.C. suburbs.

“There is a permanent part of the work base that’s never going to return to the office five days a week,” Ms. Kim said. “We just want to be where the mouths are, whether they’re at home or in the office.”

Juan Orbe gives a customer a shoe shine at Beehive Shoeworks in Chicago. PHOTO: JOE BARRETT/THE WALL STREET JOURNAL

Some smaller business owners whose livelihoods are linked to urban downtowns are left hoping that workers will return. Beehive Shoeworks, under the L tracks in downtown Chicago, recently filed for a hardship accommodation on a $500,000 Small Business Administration loan it took out during the pandemic. 

Remote work and public-safety concerns are keeping customers away, said Hanna Shunnarah, one of the owners. The business has eight workers doing shoe shines and repairs, down from 16 before the pandemic. 

“Monday and Friday, the trains are empty for the most part,” Mr. Shunnarah said. “No one’s coming down on those days.”In New York, “it’s still a real struggle” attracting the business crowd, said Sam Lipp, president of Tortazo, which has two Mexican eateries in Manhattan. His outlet near Madison Square Park gets about 250 customers for lunch on weekdays, which is about 60% of prepandemic demand, he said.

The Tortazo location in the Times Square area is trying to connect with office workers by distributing free food at co-working operations and other office locations. “We’re handing out churros,” he said. “We’re giving away lots of guacamole.”

Whitestone REIT’s properties include Lake Woodlands Crossing in The Woodlands, Texas. PHOTO: WHITESTONE REIT
Whitestone REIT is among the retail landlords with urban locations that see more promise in suburbs than in downtown office districts. Foot traffic and frequency of customer visits have increased to the company’s suburban properties since the pandemic started, according to Chief Operating Officer Christine Mastandrea.

Remote work is driving a surge in business at its suburban shopping centers, Ms. Mastandrea said. But so are entertainment, cultural and fine-dining establishments in these towns. 

In a suburb of Houston where Whitestone REIT owns a 61,600-square-foot open-air shopping center, nearby attractions including an outdoor amphitheater, cultural center and children’s museum help draw locals. 

“It used to be, you had to go downtown for dining, for the theater,” Ms. Mastandrea said. “Those options have now moved out to some of these well-developed suburban areas.” 

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