The same way that urban central business districts are morphing into neighborhoods by adding residential space, older suburban shopping malls and retail centers can get a boost by adding multifamily residential buildings and evolving into mixed-use developments, panelists said at the ULI Fall Meeting in Dallas.

“One of the reasons we’re adding residential to our retail assets is really because it might be the best use of space,” said Abbey Oklak, a planner and architect who is director of multifamily development for Kimco, a Jericho, New York–based real estate investment trust that owns and operates open-air, grocery-anchored shopping centers, mostly in first-ring suburbs of major metropolitan markets. “Maybe a big box [store] has gone vacant, and there’s not a retailer to come back in.”

Densifying shopping centers with multifamily residential space can be a win-win both for the developer and the local community. “It can add more housing units while also diversifying our portfolio,” Oklak said. “It’s giving us another way to have assets when retail is slow.”

In addition, as Kimco learned during the COVID-19 pandemic, having residential space near retail space can help boost sales at a time when stores are facing increasingly tough competition from e-commerce. Even at its retail properties that already are doing well, Kimco may look to add multifamily residential “to make the center even more successful,” Oklak said.

Alysha Buck, an associate principal and project manager who focuses on residential development at architecture and design firm Cooper Carry, concurred that value can be added to retail centers by adding multifamily residential. “You’re taking properties that were only accessible by car and all of a sudden creating that walkable environment, with users immediately adjacent,” she said.

Multifamily residential also can become part of a larger renovation and repositioning of a retail center. Buck cited as an example Ballston Quarter in Arlington, Virginia, a reworking of one of the first major suburban shopping centers in the Washington, D.C., area, built in 1951. Cooper Carry collaborated with Callison RTKL on a redesign, which transformed it from an inward-facing, enclosed mall into an urban-style community with retail space facing the street as well as an open-air garden and plaza for gatherings to connect the retail spaces. The project, completed in 2019, includes a 22-story mixed-use apartment tower located in a space previously occupied by a shuttered Macy’s store.

“The residential really made sense to be a high-rise tower, but off to one end,” Buck said.

Using multifamily residential as infill development for shopping centers is such a compelling proposition that AvalonBay Communities, a major residential developer on both U.S. coasts, is reaching out to find opportunities. “We recognize the benefits of partnering with retail developers and owner/operators to expand our portfolio and really execute better product,” said Latasha Edwards, vice president of asset management for AvalonBay.

Building residential space within retail centers also may have significant economic advantages over greenfield development. “You don’t have to worry about bringing utilities in and paying the fees that are oftentimes associated with the greenfield space,” said Edwards. In addition, retail centers usually are already close to highways and other transportation.

For potential residents drawn to the suburbs by school quality or access to employment, multifamily residential housing inserted into retail centers offers some of the same amenities they might find in an urban downtown, such as retail and services within walking distance, Edwards said. In addition, “you get that sense of community that you have in an old-school traditional local neighborhood,” she said.

Mandi Wedin, founder and chief executive officer at Feroce Real Estate Advisors, a firm in the Washington, D.C., area, said opportunities exist for multifamily residential development across the size spectrum of retail projects, from infill urban centers to suburban shopping centers and large malls. Such deals have appeal for investors at a time when rising interest rates and falling valuations are putting retail assets under pressure to increase cash flow through diversification.

“We’ve looked at self-storage, cold storage, distribution—all sorts of opportunity to create value,” said Wedin. “But the money really likes residential.”

Adding apartments to retail centers also is attractive to investors because it can provide a way to fulfill environmental, social, and governance (ESG) goals, especially if it involves repurposing and adaptive use rather than building entirely new structures, Wedin said.

Adding residential to a retail center may require some negotiations with local jurisdictions, whose existing regulatory requirements may hinder a project from being economically viable. However, “some jurisdictions are coming around and starting to build more flexibility into their codes,” Edwards said.

Reimagining the design of an existing retail center also can present challenges. “From a macro perspective, how do you create a new sense of space?” Oklak asked. “And how does that sense of space respond to all the users—what the tenant needs, what the customers are for the retail, the people who live there?” On the micro level, the remake may require stacking uses with different service and loading requirements, among other specifications.

The discussion was led by Samantha Bennett, an associate principal at Cooper Carry who leads the retail mixed-use studios in the firm’s Washington, D.C., office.