Big-Box Retailers Have a New Strategy for Breaking Into Urban Markets

With their thirst for cheap, sprawling land, big-box retailers usually operate in the suburbs or on the outskirts of town.But in recent years, some have been ditching the traditional model of massive warehouses and vast parking lots in favor of smaller stores in cities and denser communities.A new strategy involves teaming up with affordable housing developments.As the nation’s housing shortage worsens, more states and municipalities, including California, Florida, Massachusetts and Philadelphia, have rolled out incentives and financing to encourage housing construction.

Retailers like Costco and Target are riding that building push.In the Baldwin Village neighborhood of Los Angeles, Costco has signed on to be the ground-floor tenant in an approximately $450 million residential project with 800 apartments that will include affordable housing and work force housing.The property will be the first U.S.

residential development with a Costco and is scheduled to open in 2028.In 2024, a Target store in New York’s Harlem opened with a complex that has 171 affordable housing units, including 51 apartments for young people aging out of the foster care system.For the retailers, the partnerships often mean access to scarce unused land, with the housing developers responsible for construction and other upfront costs.

For the developers, a retailer like Costco can lend cachet and even contribute to the project’s garnering higher rents.“The developer gets a well-known store brand that serves as a great perk to attract residents, while the retailer gains access to a busy new neighborhood with more foot traffic than traditional, stand-alone locations,” said David Leopold, executive vice president and head of affordable housing at Berkadia, a commercial real estate firm and multifamily lender.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access.If you are in Reader mode ...