Transforming Retail Spaces: The Shift from Commercial to Residential in Urban Areas
Retail to Residential: A Transformative Trend in Urban Development
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In a remarkable shift in urban development, applications to convert existing retail buildings into residential spaces have surged across the United States. This trend, which has been gaining momentum for years, was significantly accelerated by the COVID-19 pandemic. As remote work becomes the norm and online shopping continues to dominate, the demand for traditional office and retail spaces has dwindled, while the need for affordable housing has skyrocketed.
Urban areas and downtowns are witnessing a dual crisis: an abundance of vacant retail centers and a critical shortage of housing, particularly multifamily units. Private investors and city planners are seizing this opportunity to tackle the housing crisis while revitalizing struggling downtown areas. Renters are increasingly seeking residences that offer proximity to urban amenities and mixed-use developments, making the conversion of retail spaces an attractive solution.
However, the path to transforming retail into residential is fraught with challenges. Many local zoning ordinances restrict residential use in commercial districts, complicating the conversion process. Rezoning applications can be costly and often require public hearings, where community members may voice concerns about increased traffic and the impact on local schools. Additionally, local governments frequently hesitate to allow ground-floor residential units, citing safety concerns for tenants.
In response to these challenges, jurisdictions nationwide are enacting programs and revising zoning codes to facilitate commercial-to-residential conversions. In 2024, Washington, D.C., launched the “Housing in Downtown” initiative, offering a 20-year tax abatement to encourage developers to transform commercial buildings into multifamily residences. Similarly, cities like Champaign, Illinois, and Grand Rapids, Michigan, have amended their zoning codes to permit ground-floor residential use, while San Francisco has introduced design guidelines to enhance the appeal of these units.
Among the retail spaces ripe for conversion are indoor malls, often situated in desirable locations with excellent accessibility. In Milwaukee, developers have successfully transformed the Grand Avenue Mall into two apartment complexes featuring high-end amenities, including gyms and pickleball courts. This redevelopment retains some original retail aspects, such as a food hall, allowing residents to enjoy shopping and dining without stepping outside.
Providence, Rhode Island, has also embraced this trend, converting portions of the historic Arcade Mall—America’s oldest indoor shopping mall—into 48 “microapartments.” Meanwhile, in Plano, Texas, the Collin Creek Mall has been reimagined as a mixed-use community, featuring 2,300 apartments while preserving the mall’s original structure.
Despite the potential benefits, buying and redeveloping a mall is a complex endeavor. Developers face not only zoning hurdles but also restrictive easement agreements (REAs) between anchor tenants and mall owners. Any change in use typically requires consent from all parties involved in these agreements. Additionally, existing retail tenant lease agreements must be navigated, and significant structural upgrades are often necessary to make former retail spaces livable.
Nevertheless, many developers are finding that the rewards of mall redevelopment outweigh the challenges. As urban landscapes evolve, it is likely that we will continue to see a trend of aging malls being repurposed into multifamily residential or mixed-use centers, breathing new life into once-thriving retail hubs.
As cities adapt to the changing needs of their residents, the conversion of retail spaces into homes may not only address the housing crisis but also foster vibrant, mixed-use communities that reflect the modern urban lifestyle. The future of urban living is being reshaped, one retail space at a time.
