Eliminating a quarter of the parking spaces for a retail and office development in a busy urban area might seem like a potential nightmare. But in Riverside, a 25% reduction of required parking spaces helped spell success for University Village, a 16-acre project near the University of California, Riverside, campus.

University Village businesses thrive with what would appear to be a shortage of parking because a 910-space garage is used by office workers and students during the day, and then by moviegoers to the 10-screen theater and restaurant patrons at night. "We knew we would have shared parking," said Ken Gutierrez, Riverside’s planning director. "We knew we wanted that shared intensity."

Another 500 spaces of nearby ground-level parking boosts accessibility for motorists – such as morning commuters craving a Starbucks fix – without gobbling up valuable retail space. University Village is evidence that when merchants, developers and a municipality are willing to flex, new retail development can thrive in existing urban areas.

Nonetheless, urban retail development "is not for the faint of heart," said Matt Holmes, president of Retail West, a San Francisco-based leasing brokerage for 26 retailers including Peet’s Coffee, Kinko’s and Whole Foods. He estimates that a retailer’s interest in an urban location translates into a store opening no more than 60% of the time. The constraints can be overwhelming: Limited parking and retail space, lack of ground-level access, city bureaucracy and community groups’ opposition to big box stores or chains.

Yet urban retail’s intoxicating blend of sophisticated shoppers and guaranteed foot traffic continues to lure developers and intrigue planners. Planning directors do not see the appeal decreasing any time soon as work-live-play centers continue to gather momentum in urban bellwethers like San Francisco, second-tier cities and even older suburbs.

The customer base is there for retailers, but the space often is not. Many big retailers such as Home Depot and Target prefer to build based on a template for undeveloped suburban land. Their prototypes call for acres of surface parking adjacent to single-story stores.

That prototype does not work in developed urban areas, where parking and ground-level retail space are at a premium. Rather than eschew promising sites with challenging configurations, however, big retailers are innovating. The first two-level Wal-Mart to be built from the ground up is scheduled to open this fall in San Diego. In another twist on its traditional format, the new Wal-Mart’s only entrance will be through a mall.

Wal-Mart and Home Depot are also thinking outside the big box in order to penetrate desirable retail markets.

"Their real estate directors have been very creative because land just isn’t available," said David Lukes, vice president of development and leasing for Kimco Realty Corporation. in Daly City. "They either be creative, or they don’t get into the market."

That creativity comes at a cost. Developing a two-story retail store can cost about 40% more than the a single-story site, said Lukes, who’s involved in the refurbishing of the 50-year-old Westlake Shopping Center in Daly City, just south of San Francisco. Second-story construction costs about $90 per square foot, versus $50 per square foot for the ground floor, according to Lukes. The extra costs cover steel construction instead of wood, long, easily accessible escalators to woo shoppers upstairs, elevators for freight delivery and handicapped access, and conveyor belts for shopping carts.

Zoning issues come into play as well. Developers often need approval to exceed zoning regulations on building height and density. City officials are far more likely to approve variances when residents support them, according to Retail West’s Holmes and other retail brokers, who also warned that united residents may also kill a project.

In San Francisco, which has discrete neighborhoods of organized, vocal residents, chain stores have often suffered the wrath of community organizers, who feared anything but mom-and-pop businesses would erode their neighborhood’s charm. Borders Books’ effort to open on Union Street in San Francisco four years ago was ultimately doomed because of staunch neighborhood objections, Holmes said. The store even conceded to limit delivery days, but to no avail.

If even one resident demands it, a developer eyeing a San Francisco site must complete a discretionary review detailing the impact the proposed business will have on the community. "You need to prove you’re needed in the neighborhood," he said.

Developers who wanted community support used to "pawn it off on expediters and big-shot attorneys. That’s not the way to go," Holmes said, because it’s expensive and it alienates residents. Increasingly, retail brokers and developers are approaching the community first. Some like to survey residents about the businesses they’d like to see, what type of architecture they find appealing – or at least unobjectionable – and what concerns they have about potential development. Some developers find that surveying community members about their preferences before filing an application at city hall is an effective way to ensure buy-in, but the process is time-consuming.

"It makes the development process so long in the greater Bay Area," Holmes said with a sigh. "It makes developers say, ‘Forget San Francisco. I’m going to participate in suburban sprawl. I can get a permit in a week in Antioch.’"

Securing the requisite approval for a Pottery Barn store in San Francisco’s Castro neighborhood took two years. Retail West thought a two-story stucco building that had housed a bank would be ideal for the house wares chain. But residents feared a Pottery Barn would drive out smaller stores. Holmes finally got his project built in 1999 with a creative compromise: He agreed to build an off-site community room for neighborhood groups to use.

Sometimes, however, cities and residents are hungry for retail but cannot persuade developers and merchants to commit. That is the case in downtown Oakland, which offers matching funds for retail façade and interior improvements to lure developers.

"In general, people just feel starved for retail," said Keira Williams, an urban economic analyst for Oakland’s Economic Development Unit.

Mayor Jerry Brown hopes that increasing downtown housing options will prime Oakland for retail development. Developers, however, remain aloof. They want ground-floor space with high ceilings and no interior columns, and they do not want to build it themselves. So with the exception of Bay Area-based chains Gap and Men’s Wearhouse, most downtown tenants are small, locally owned stores.

Williams and her colleagues would love to attract a national clothing store to fill a void in Oakland’s retail market and, ideally, spark further infill. "Sometimes you need the pioneering retailers," Williams said, "and once they’re there, the other guys are more willing to come."

Ken Gutierrez, City of Riverside Planning Department, (909) 826-5658.
Matt Holmes, Retail West, (415) 292-7200.
David Lukes, Kimco Realty Company, (650) 991-1555.
Keira Williams, City of Oakland Economic Development Unit, (510) 637-0260.