Many rail transit stations offer opportunities for retail development, which can generate much-needed revenue for transit systems.
RETAILERS AND RETAIL space brokers are viewing transit systems as attractive locations for small-size but high-volume outlets. Rail transit stations, like airports, offer retailers access to as many as hundreds of thousands of customers every day. And transit stations, like airports, are places where potential customers are a “captive audience”: once they arrive, they stay until it’s time to go.
Since transit riders typically have shorter waits than those travelling through airports, the rail transit marketplace offers ideal opportunities for buy-and-go sales such as newspapers, magazines, coffee, packaged food items, cosmetics, drugs and selected services.
MARTA in Atlanta
The Metropolitan Atlanta Rapid Transit Authority (MARTA) rail system is a good example of an opportunity for retail. Phase 1 of its retail program, in place since 2010 at almost all stations, consists of vending machines for snacks and beverages. The transit authority initially was concerned about maintaining the cleanliness of its system but, as Denise Whitfield, MARTA’s manager of concessions, explains, there has been no litter impact. “The bottles walk out with the customers,” she explains, “and MARTA has decided to move to phase 2, which will involve ATMs, carts, kiosks and newsstands offering beverages, food, magazines, newspapers and sundries.” Phase 2 will expand food sales but will limit them to prepared and reheatable items.
In phase 1, MARTA is charging a minimum guaranteed rent plus a percentage of sales. In both phases 1 and 2, it is insisting that retailers limit prices to no more than 10 percent above storefront retail prices. The transit authority has made no decisions about a phase 3. Whitfield adds that MARTA has learned two major lessons so far about retail: that its riders respect the cleanliness of the system, and that they appreciate that while MARTA is allowing selected retailers access “inside the system,” it is not letting those vendors charge a significant price premium.
From the transit system’s point of view, this market offers a source of much-needed rental income. Good retail, in turn, may help boost ridership.
Metra in Chicago
Retail outlets already can be found in some of the stations in Chicago’s rail transit system, Metra (short for “Metropolitan Rail”). Examples include food vendors, a CVS drugstore, a sit-down bar and grill, a Starbucks outlet and a bank. Metra derives rental income from these facilities. But the system’s star retail offering is MetraMarket, a 100,000-square-foot street-level development, plus parking, in Metra’s Ogilvie Transportation Center.
MetraMarket is two blocks long and includes boutiques, restaurants, shops, neighborhood service outlets and the 30-vendor upscale Chicago French Market. About 115,000 transit commuters walk by the market twice a day, as do up to 10,000 other pedestrians. Forty thousand of those commuters exit and enter the station through the market twice daily. Metra has leased the space at market rates to the master lessee for 90 years; the lease, like those in Atlanta, includes a base rate and an add-on as a percentage of sales. Annual rents currently received by Metra are in the low seven figures.
MetraMarket illustrates several principles for scaled-up transit-oriented retail, according to Camille Julmy, a vice chairman at CBRE in Chicago, which manages MetraMarket: “Make more creative use of transit-owned retail, don’t isolate the shops behind the turnstiles, integrate the retail space into the neighborhood and offer different marketing approaches to commuter and neighborhood patrons. You need to create spaces that themselves are an attraction. We have festivals and Saturday events. These are ways to bring in a customer base beyond commuters.” Julmy added that CBRE offers leases on spaces ranging from 625 to 9,900 square feet. Bon Appetit magazine has named the development one of the five best food halls in the country.
One Step at a Time
Developers seeking to build out retail space within a transit system and retailers proposing to rent that space may find a willing partner — or a cautious landlord. Developers and retailers should encourage a reluctant transit authority to get into retail on a step-by-step basis, starting, potentially, in this order:
- Retailers and transit authorities should begin by adopting a “gold standard” for litter prevention: trash receptacles, recycling/compost receptacles, regular sidewalk and floor cleaning, and graffiti prevention and removal. (Atlanta’s MARTA and Chicago’s Metra affirm that customers and tenants have respected the cleanliness standards that the transit agencies long have set. Chicago’s Metra Market is immaculate.)
- Transit authorities should negotiate leases on a triple-net basis, so that their role is limited to receiving checks and overseeing contract compliance.
- Start with vending machines in stations. Food trucks and/or carts in lobbies, passageways and parking lots, especially for special events, are another good starting point. So are ATMs and food, coffee, sundries and newsstand carts, kiosks and pop-up outlets in stations.
- Design station renovations, enlargements and connections, and future stations to accommodate retail facilities; use eminent domain to make station complexes large enough to offer extensive retail offerings, including street-level outlets, if rider traffic and/or location justify doing so.
The new food court in the 30,000-square-foot retail concourse being built out below Manhattan’s Columbus Circle will include nine restaurants with folding glass storefronts surrounding an existing floor mural by artist Sol LeWitt.
New York’s MTA and Beyond
New York City’s Metropolitan Transit Authority (MTA) has entered into a contract for the development of a block-long, 30,000-square-foot retail concourse under Manhattan’s Columbus Circle. The MTA retained Oases Real Estate, a New York developer and consultant, for the project. Oases offered a guaranteed base rent in the six figures and add-on rent at a percentage of sales, taking the MTA’s annual income to seven figures. These rents are, nevertheless, discounted from sidewalk storefront rents in the neighborhood. Oases CEO Susan Fine, who supervised much of the redevelopment of Grand Central Station, has hired the firms Sagmeister & Walsh (branding and media) and Architecture Outfit (planning and design) for the multi-million dollar redevelopment of the space, which is expected to open this November. An early plan shows 31 stores on the subway mezzanine level but outside the fare gates, so the outlets will be accessible to all.
Even transit agencies that traditionally have been reluctant to include retail offerings in subway stations, like Washington, D.C.’s Washington Metropolitan Area Transit Authority (WMATA), likely have some stations that are connected to or under the same roof as some form of retail space. WMATA’s Metrorail stations, for example, connect to retail and food service facilities at Reagan National Airport, Union Station, Pentagon City and Tysons Corner. The evidence demonstrates that WMATA and other transit agencies that don’t include on-site retail offerings are missing out on a potentially lucrative revenue source. In addition, good retail outlets make any venue more lively and attractive.
Chicago’s Metra and New York’s MTA were fortunate to have large spaces adaptable for retail uses. Other transit systems may discover that they already have unused space, or parking garage space, that can be adapted for retail tenants — and can thus produce additional revenue.
These days, no one would consider designing an airport pier without retail space. Any transit system, in designing a new station, especially at high-traffic locations like transfer points, should consider including retail space both inside and outside the turnstiles. Developers and retailers also should look to large existing transit stations and proposed new stations as potential new opportunities.