Apartment buildings drop vacant storefronts in favor of ground-level apartments

In a red-hot apartment market, landlords are having no problems filling apartments. But filling ground-floor retail space underneath apartment buildings is a different matter, especially in sleepy corners of neighborhoods still developing.

Some landlords are looking to change their line-up, converting storefronts to walk-out apartments. Other developers with projects still in the development stage are considering an approach that could be built out either way.

Ground-floor retail has traditionally been seen by planners, developers and neighbors as key promoting street-level activity and vibrant urban neighborhoods. But more developers are starting to see potential downsides, too, which is pushing them to look at alternatives.

“Retail is a fine idea, but as a planning tool, I think it’s been applied too liberally,” said Spencer Welton, a senior vice president for Simpson Housing. “It’s oversupplying the retail market, essentially.”

Simpson in October turned the ground-floor retail at The Matisse in the South Waterfront into 19 walk-out apartments and two-level lofts.

The South Waterfront has scored some recent retail wins, too. Little Big Burger opened up at the Ardea apartments. Lovejoy Bakers, Cha Cha Cha restaurant, Greenleaf Juicing and Fieldwork Flowers are all coming to The Emery apartment building, which opened in September.

The central city as a whole has seen retail vacancy decline to 4.6 percent in the year’s third quarter, according to brokerage NAI Norris Beggs & Simpson. Things are even brighter in Portland’s inner eastside, an area seeing lots of apartment construction that’s also “viewed as one of Portland’s most robust retail submarkets,” according to a report from brokerage Kidder Mathews.

But The Matisse is situated near the South Waterfront’s sleepier southern edge, at the end of the streetcar line.

“We just couldn’t find any takers,” Welton said. “We knew the residential was working well. It ended up being an economic decision, essentially.”

The new, post-retail, ground-floor units still look like storefronts from the outside. With the blinds open, passersby can look right into the living area and kitchen through floor-to-ceiling windows.

Inside, the big windows mean extra light, even with the blinds drawn. The ceilings are higher than normal apartments, and spaces designed for a restaurant with extra-high ceilings became two-level lofts.

Privacy has been a sticking point for some potential tenants, Welton said, but others find the idea of having their own front door appealing.

Overall Portland-area retail vacancy is hovering at 5.6 percent in the Portland area, according to brokerage Kidder Mathews, and has been relatively flat for about a year. But in the year’s third quarter, vacancy went up 0.1 percent as new construction outpaced absorption.

In Northwest Portland, the luxury Park 19 apartment building was granted a permit in November to turn one an empty retail storefront retail facing Glisan Street into two one-bedroom apartments. The building is owned by the TIAA-CREF pension fund.

For a planned Pearl District apartment building along an established retail corridor, the Portland Design Commission wanted storefronts facing Northwest 13th Avenue. But on the north edge of the district, the prospect made developer Mill Creek Residential Trust a little nervous.

“Our mantra has always been if you don’t need retail, don’t do it,” said Sam Rodriguez, Mill Creek’s managing director in Portland. “We’ve learned the hard way that no matter how much you wish it and you think it makes sense ...  retail is very skittish about going to new areas and pioneering it.”

They offered a compromise: live-work apartments that open to the street and could be used by independent business owners (like accountants, therapists or real estate agents, for example) to meet with clients. The nearby Enso Apartments on Northwest Marshall Street converted its ground-floor retail storefronts to live-work space last year.

"We decided to take the opposite approach," Rodriguez said. "We're going to go with residential that we can possibly convert to retail -- if it makes sense."

-- Elliot Njus