Developers Target Underused Retail Land for Housing and Mixed-Use Projects

Underused retail properties are emerging as potential housing sites as developers look for ways to create denser projects in established, high-traffic areas. But converting commercial land into mixed-use communities will require developers and cities to balance housing demand against municipal revenue concerns, traffic issues, and the character of surrounding neighborhoods.

That was the central message from a panel at ICSC@Western in San Diego, moderated by Kosmont Companies President Ken Hira. Omar Dadabhoy, deputy city manager and community development director for the City of Fountain Valley, and Arturo Sneider, co-founder and CEO of Primestor Development, discussed why aging commercial sites are drawing increased attention—and what can keep projects from advancing.

For investors and developers, the opportunity lies in sites already near population centers, transportation corridors, retail, and daily services. The challenge is proving that more housing can improve a property's long-term relevance without creating costs or disruptions that make local governments and neighboring residents resistant to redevelopment.

Housing Demand Is Reshaping Commercial Land

Sneider said repurposing commercial land has become a central focus for Primestor as demographic and economic shifts change how people want to live, shop and spend their time.

Traffic congestion is one factor. Consumers increasingly want shorter commutes and closer access to retail, services and entertainment, he said. At the same time, inflation and higher living costs are prompting families and individuals to consider smaller, more affordable housing options in locations near jobs and everyday needs.

Those pressures are creating a stronger case for mixed-use projects that combine residential space with retail and other commercial uses. Rather than treating housing and retail as separate real estate categories, developers are looking at ways to address both demands on sites where density and traffic are already high.

"When you put all aspects together," Sneider said, developers are seeking to solve several problems at once by creating mixed-use environments in areas with existing population density and congestion.

The approach could also give older retail properties a new role in markets where traditional retail development alone may no longer represent the highest and best use of the land.

Retailers Are Rethinking Space Needs

Changing consumer behavior is also influencing how retailers assess their real estate needs, Sneider said.

The shift does not necessarily mean retail is losing its place in a project. Instead, it can position retail as part of a broader environment where residents live near stores, restaurants and services. For commercial property owners, adding housing can help create a built-in customer base for ground-floor retail while giving a shopping center or other commercial site a more active role throughout the day.

That potential is particularly relevant for properties in infill locations, where land is scarce and new development may face limited options outside of redevelopment or higher-density construction.

Still, the value proposition depends on local conditions. Developers must account for the site, the surrounding community and the ability of a city to support new residents before advancing a residential component.

Cities Face A Fiscal Calculation

For cities, new housing can bring challenges that differ from those associated with commercial development.

Dadabhoy noted that California's tax structure can make new residential development less attractive to municipalities than commercial projects because of the revenue housing generates relative to the public services it requires. He distinguished between existing residential neighborhoods and new residential development, underscoring that municipalities must weigh the fiscal implications of adding housing during the approval process.

That dynamic can complicate redevelopment plans even when a site appears well suited for housing. A city may support efforts to activate underperforming commercial land, but it also must consider the ongoing costs of serving new residents.

For investors, that means local government support cannot be taken for granted simply because a site is underused or because a market has a housing shortage. The fiscal case for a project may be as important as the development case.

Density Requires Careful Design

The panel also addressed how developers can add housing density without creating unintended impacts for established neighborhoods.

Hira pointed to changing traffic patterns and evolving ways residents use their communities, citing Norwalk as an example. Cities and developers, he said, must account for those shifts when considering higher-density projects near existing residential areas.

One strategy is to concentrate density on smaller development footprints. Hira described the use of modular steel construction, which can allow projects to rise higher while incorporating fully finished residential units and amenities.

The approach is intended to add housing capacity while limiting the amount of land consumed by development. For commercial property owners with constrained sites, this could offer a way to pursue residential density without requiring the same horizontal expansion as more conventional development.

The broader takeaway from the discussion was that commercial-to-residential redevelopment is not simply a response to housing shortages or weaker retail sites. It is increasingly a strategy for repositioning land in locations where consumers, retailers and cities are all adapting to higher costs, congestion and changing patterns of daily life. The projects most likely to move forward will be those that can make a clear case not only for housing demand, but also for fiscal viability, neighborhood fit and long-term relevance.

Check back with GlobeSt.com for more coverage from the ICSC@Western event last week and click the stories below for what you might have missed.

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