Sensible Retail Zoning A White Paper to Discuss Appropriate Zoning Classifications, Categories, and Uses for Neighborhood Shopping Centers North Carolina ICSC Governmental Affairs, July 14, 20014

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Sensible Retail Zoning A White Paper to Discuss Appropriate Zoning Classifications, Categories, and Uses for Neighborhood Shopping Centers Overview

Recently, a petition was circulated by a neighborhood association in Raleigh, which raised questions about the relationship between the future land use categories in the City’s Comprehensive Plan (Comp Plan) and the zoning districts contained within the Unified Development Ordinance (UDO). The petition also puts forth policy proposals to remedy the perceived conflicts, to redefine certain classifications, and to establish limitations on what can be built in various zoning districts. The purpose of this White Paper (Paper) is to provide guidance on industry standard definitions and best practices as it relates to retail zoning and development, to apply those definitions and practices to the Raleigh code, and to evaluate some potential implications if these standards are discarded. Background

In the City of Raleigh, the Comp Plan designates categories for each property and the zoning district most appropriate to that category. The Comp Plan was adopted by the City of Raleigh in 2009, and the UDO was formally adopted in 2013 with the remapping associated therewith currently pending public comment. For the purpose of this Paper, the Comp Plan categories to focus on are Neighborhood Mixed Use (NMU), Community Mixed Use (CMU), and Regional Mixed Use (RMU). A brief description of each category and the corresponding zoning district follows: · Neighborhood Mixed Use. This category applies to neighborhood shopping centers and pedestrian-oriented retail districts. Typical uses would include corner stores or convenience stores, restaurants, bakeries, supermarkets (other than super-stores/centers), drug stores, dry cleaners, video stores, small professional offices, retail banking, and similar uses that serve the immediately surrounding neighborhood. NX is the most appropriate zoning district for these areas. · Community Mixed Use. This category applies to medium-sized shopping centers and larger pedestrian-oriented retail districts such as Cameron Village. Typical commercial uses Sensible Retail Zoning

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include large-format supermarkets, larger drug stores, department stores and variety stores, clothing stores, banks, offices, restaurants, movie theaters, hotels, and similar uses that draw from multiple neighborhoods. Development intensities could be higher than in Neighborhood Center areas, with mid-rise buildings as well as low-rise buildings. CX is the primary corresponding zoning district for these areas. · Regional Mixed Use. This category applies to the Triangle Town Center area, the Brier Creek area, and the North Hills/Midtown and Crabtree Centers. The intent is to identify the major retail and service hubs that draw customers from across the city. These areas may include high-density housing, office development, hotels, and region-serving retail uses such as department stores and specialty stores. These areas would typically be zoned CX.1 In a broad sense, NX generally corresponds with NMU, and CX generally corresponds with CMU and RMU. These classifications align with many jurisdictions both in North Carolina and across the United States, and would be considered “standard” in many ways. This Paper will focus primarily on NMU and NX designations. Shopping Center Classifications and Characteristics

Certain characteristics differentiate neighborhood and community shopping centers. The International Council of Shopping Centers (ICSC), the leading trade group within the global shopping center industry with over 63,000 members, provides research that focuses on multiple aspects of the approximately 115,000 shopping centers in the United States. Based on data that underwent years of scrutiny from industry experts, ICSC published “U.S. Shopping-Center Classification and Characteristics,” (of which a portion is re-printed below) to provide high level metrics on neighborhood and community shopping centers across the country. Relevant excerpts follow: Average Size (Sq. Ft.)

Typical Range (Sq. Ft.)

Acre s

# of Ancho rs

% of Anchor

Typical # of Tenants

Neighborhood Mixed Use

71,890

30,000 – 125,000

3-10

1+

30 -50%

5–20 stores

Community Mixed Use

197,062

125,000 – 400,000

10-40

2+

40 -60%

15-40 stores

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Neighborhood Mixed Use

Community Mixed Use

Concept Typical Type of Anchors Convenience Oriented Supermarket General merchandise or convenience- oriented offerings. Wider range of Discount store, apparel and other soft goods supermarket, offerings than neighborhood drug, large-specialty centers. The center is discount (toys, books, usually configured in a electronics, home straight line as a strip, or may improvement/furnishings or be laid out in an L or U shape, sporting goods, etc.). depending on the site and design.

Another prominent real estate industry group, the Urban Land Institute (ULI), defines a neighborhood center as one that “provides for the sale of convenience goods (foods, drugs, and sundries) and personal services (laundry and dry cleaning, barbering, shoe repairing, etc.) for the day-to-day living needs of the immediate neighborhood. It is built around a supermarket as the principal tenant and typically contains a gross leasable area of about 60,000 square feet. In practice, it may range in size from 30,000 to 100,000 square feet.” A “super community/community center” by contrast, according to ULI, is “any center larger than a neighborhood center but with neither a traditional department store nor the trade area of a regional shopping center. This includes…power centers, town centers, lifestyle centers and outlet/off-price centers…”2 Please see Figure A for additional information from ULI in this regard: Figure A

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Of course, size is not the only distinction between neighborhood and community centers. The type of center is a function mostly of major tenant classification, along with center and site size, distance and travel time and customer base. In fact, The Appraisal Institute (AI), a global professional association of real estate appraisers, with nearly 22,000 professionals in almost 60 countries throughout the world, correctly asserts that “size alone or size and configuration are inadequate to define shopping centers because they imply a direct connection between size and other factors – trade area, tenant characteristics and mix and categories of retail goods.”3 There are other contrasting features between the neighborhood center and the community center that are therefore worth noting. The trade area these centers attach to, and the associated drive times that patrons are willing to endure to shop at these destinations, is an informative difference. Neighborhood centers and their tenants draw from a smaller trade area, with particular focus on the neighborhoods in close proximity, and drive times that are tolerated to those centers are typically anywhere between 5 and 10 minutes. Community centers draw from a much larger, if not regional, trade area, with customers enduring longer travel times, from 10 to 20 minutes.3 Here, it is worth nothing that there is an inconsistency in the NMU definition of the Comp Plan that contrasts with the industry standards we have mentioned here. The trade area associated in the Comp Plan with the NMU definition is “about a one-mile radius....”1 A trade area of this size would seem to correspond with a “strip/convenience center” which we discuss below. The NMU, CMU, and RMU categories implicitly capture trade areas to some meaningful extent already; however, a trade area threshold should be avoided. The measurement of trade area is site specific and based on a wide number of variables that evolve over time (population density, road configuration and travel pattern, location of competition, nature of retailer composition, etc.), which making establishing specific limitations impractical. Of particular note in terms of shopping center characterization is the sensible association of grocery stores with neighborhood retail zoning classifications. Grocery stores are often the primary driver of neighborhood shopping centers, and the neighborhood shopping centers built and open in Raleigh today support that assertion. Robert Gibbs, in his book Principles of Urban Planning and Development, notes on this topic:4

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In 2013, The Food Marketing Institute, a trade group that covers both small and boutique grocers as well as large scale discounter and warehouse food stores, published a series of “Supermarket Facts” which indicate that the median total grocery store size is 46,500 square feet and in a 2012 report entitled “U.S. Grocery Shopper Trends,” identified the average supermarket size as 48,000 square feet (contrasting with grocery super centers which are an average of 170,000 square feet and more identified with mass merchandisers). And even as grocery stores have evolved in terms of their offerings (many now contain drugstores, fresh formats, etc.), they remain inexorably tied to the neighborhoods they service. Jason Scully in a 2011 article for ULI offered this observation in his article, “Rethinking Grocery Stores:” The evidence is starting to point to smaller purchases at and more frequent visits to the grocery store, and fewer people using cars to take their groceries home…locating stores within walking distance of the maximum number of homes is one way of responding to these changing patterns. Implications for the Comp Plan and UDO

The Comp Plan and the UDO make appropriate distinctions between neighborhood and community zoning classifications, and generally are in line with the industry definitions and characteristics outlined in this Paper. It seems evident that NMU and NX call for neighborhood shopping centers serving the surrounding neighborhoods and CMU, RMU and CX call for larger shopping centers including, big boxes, mass merchandisers and power centers serving more of a regional population. Although there may be certain parts of the text of either document which may limit or expand these definitions in some sense, their combination together generally corresponds appropriately with industry definition and

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practice, and more broadly, correspond appropriately with zoning classifications adopted throughout North Carolina and the U.S. According to available research, most jurisdictions in the U.S. do not further segregate the neighborhood zoning classifications. The market generally will produce appropriate size retail developments with a complimentary tenant mix, and local planning departments and elected leadership will ensure compatibility with established ordinances and property rights. Those jurisdictions that do further segregate the neighborhood retail designation often look to a “small shop” retail category that corresponds to “strip/convenience centers.” These centers are on small parcels, typically less than three acres, usually with convenience store/mini marts as a primary tenant. AI defines these centers as “a string of independently developed, commercially zoned lots, or a string of retail commercial stores on a single site with no anchor tenant or central management...Strip commercial development is usually linear and faces a street or parking lot; planning and design are not usually coordinated. Access, curb cuts, parking, and landscaping are often chaotic; site and building plans do not conform to any unified urban design; and the layout is decidedly pedestrian unfriendly, making it difficult to walk from store to store.”3 From an industry perspective, the subcategorization of retail zoning classifications in this manner often tends to be impractical and random its implementation, thereby impeding traditional development. Since the NMU and NX designations, as currently contemplated, allow for these “strip/convenience” developments already, further sub-categorization is superfluous in Raleigh’s case. This brings us to the most troublesome points raised in the petition. Several of the petition’s policy points seek to re-interpret the NMU and NX designations in such a way as to confuse or synthesize traditional neighborhood zoning and strip/convenience centers. These actions do not correspond with traditional planning and established definitions and characteristics of retail zoning that are successful elsewhere in North Carolina and the U.S. The implication of these proposals is severe. For example, if these proposals result in the determination that the NMU and NX designations are not appropriate for standard sized grocery stores, the ability to develop traditional neighborhood shopping centers in NMU and NX designations will be vastly limited. As we have established in this Paper, grocery anchored centers are the typical developments in neighborhood-zoned properties. It is conceivable that if non-standard limitations are set on size, trade area, or anchors in the Comp Plan or UDO, a de-facto moratorium could be established and new development in this zoning category could all but cease. Potential Impacts

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Since evaluation of this impact on future developments is speculative, this Paper will evaluate the impact of petition’s proposed policy impacts on past development. We identified eleven (11) existing shopping centers and one (1) proposed in the City of Raleigh with grocery anchors in NMU classifications which would not have been developed if the City discarded the industry definitions and practices as outlined herein. Please see Figure B below: Figure B

Based on research conducted by ICSC, if these grocery anchored neighborhood centers had not been developed, it would result in the loss of 2,277 jobs, $326 million in sales (and $22 million in sales tax), and a loss of $1.8 million annually in property tax collected by the City (please see Table 1 in the Appendix). It is also highly probable that grocery expansion would all but cease in the City, outside of small boutique grocers. Publix Supermarkets, Harris Teeter, and Kroger almost certainly would not be able to compete effectively in the City of Raleigh given this revised interpretation. These changes therefore could deny City residents the benefits of competition and selection beyond the retailers who are already present in the City. Conclusion

The City of Raleigh’s planning department, concerned citizens, and elected leaders have spent a great deal of time and effort to bring the Comp Plan and the UDO into a modern format that is compatible with a growing and thriving City. In most respects, the zoning classifications and definitions created in the Comp Plan and the UDO correspond appropriately with industry standard practice as outlined in this Paper. Where divergence exists, the Comp Plan and UDO should rely on the best practices in the industry which have

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proven successful across North Carolina and the country at large. Proposals that confuse or synthesize traditional neighborhood retail development and convenience/strip centers should be avoided, and policy proposals that would discourage grocery-anchored shopping centers from flourishing in neighborhood retail development should be rejected.

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Table 1

Reprinted with permission from Mr. Christopher S. Gerlach, Director of Public Policy Research, International Council of Shopping Centers, July 7, 2014.

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Works Cited 1. Section A.1, “Future Land Uses,” City of Raleigh Comprehensive Plan, 2009 2. Kramer, Anita., et. All. Urban Land Institute. Retail Development. Fourth Edition. 3. Vernor, James D., et. All. The Appraisal Institute (2009). Shopping Center Appraisal And Analysis, 2nd Edition 4. Gibbs, Robert (2012). Principles of Urban Retail Planning and Development. As reprinted in ArchitectureWeek (2012).

Other works quoted as noted from their sources. For more information, please contact: Mr. Joseph Lee International Council of Shopping Centers Manager, State and Local Government Relations – Southern Division Mobile: (404) 229-5297 E-mail: [email protected]

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