Patrons dine at Teller's, 746 Mass. With competition from national chains encroaching on independent businesses, the rise of big-box stores and suburban shopping malls, and new zoning regulations, some of the strategies that have sustained downtown Lawrence are facing big challenges.

Old-fashioned business sense has kept Weaver’s Department Store a downtown destination for more than 150 years.

Weaver’s president Joe Flannery believes that customer service and a happy staff have contributed to the store’s longevity.

“It all comes down to people, whether it’s your customers or your staff,” he said. “If your staff’s happy, they’re going to treat your customers well. And if your customers are happy with your products and your service and your value, they’re going to come back.”

But with competition from national chains encroaching on independent businesses, the rise of big-box stores and suburban shopping malls, and new zoning regulations, some of the strategies that have sustained downtown Lawrence are facing big challenges.

Citywide business vacancy rates have hovered around 5 percent for the past several years, well below the national average of about 7 percent, according to an annual survey produced by commercial real estate brokers Grubb & Ellis/The Winbury Group. But downtown’s retail vacancy sits at 8 percent.

That survey notes that the ideal vacancy rates nationwide are considered to be in the 7 to 8 percent range.

That 5 percent vacancy has remained steady since 2002. And despite a recent study noting Wyandotte County’s economic resurgence, retail space in Lawrence has actually grown to an estimated 5.68 million square feet in 2007, up from 5.55 million square feet in 2006.

“I think downtown is in an interesting position right now,” said Marilyn Bittenbender, a senior vice president at Grubb & Ellis/The Winbury Group. “Historically, we have always seen some turnover in the downtown. That’s just the nature of business. I think we are seeing some fairly fluctuating shopping patterns. I think that’s not just here locally. I know there are probably some downtown merchants that are watching that carefully.”

She said The Legends, an outdoor shopping center in Wyandotte County, and slowing population growth could threaten the vitality of downtown, which includes retail and industrial businesses, as well as office space and residential property.

Retail challenges

“You’ve got to be able to sell enough product to offset the rising property taxes and rising costs, period,” said Dan Hughes, owner of Sunflower Outdoor & Bike Shop, 802 Mass., and president of Downtown Lawrence Inc. “Businesses come and go. An eclectic mom and pop shop is always on the edge of sustainability. So if you have a national chain come in, they’re paying rent on the same level as the mom and pop store,” making it difficult to survive without a national backing.

Flannery said accommodating rising real estate appraisal rates is a challenge for many of the small businesses in the area.

“Real estate appraisal prices have increased significantly, especially in the last 10 years. As a result, people’s rents have gone up with the increase in real estate taxes. It’s a big factor if you can be successful or not downtown,” Flannery said.

New retail destinations have hurt downtown, Hughes said, because consumers want to try something new.

“When they started developing South Iowa Street, when Best Buy comes in, or a Target store, yeah, downtown Lawrence takes a hit,” he said. “And they dip, and then they come back. I think consumers have a desire to shop at the new.”

He also noted the popularity of online shopping as a contributor to traditional turnover.

“We have declining tax revenues, but at the same time, the population wants increasing amenities. Every time somebody buys something online, it’s a real cause-and-effect deal. That’s where the tax money comes from,” Hughes said.

But turnover in a downtown that has seen hundreds of businesses come and go over the years is not the reason for the higher-than-average vacancy. Rather, Bittenbender says, the statistics by themselves are misleading.

In an area with limited square footage, any vacancy is going to significantly increase the statistics. She cited the 26,000-square foot Masonic Temple, 1001 Mass., which has been vacant for several years, as an example.

“When you have a single large property like that in a corridor, it is going to skew your number,” she said. “While it looks like it might be a higher percentage, I think those numbers can be tracked to a couple of individual properties.”

Office space

And while downtown’s face is its retail presence, 30 percent of Lawrence’s office space is located downtown.

Across the city, office space is thriving, dropping from 18 percent vacancy in 2002 to 10 percent today, on par with the national average. However, downtown suffers from high vacancy: 18.5 percent today, compared with nearly 7 percent in the Wakarusa area to 3 percent on South Iowa Street.

That’s twice the national average of 9.7 percent, according to a report by Cushman & Wakefield, a global commercial real-estate company.

It’s a problem that is compounded by retail businesses’ need for business throughout the day. More employers located downtown mean more customers making purchases during lunchtime and after hours.

“The downtown office market is actually very healthy,” she said. “More than 80 percent of office users are in 2,500 square feet or less. That means you have lots of insurance agents and attorneys and dentists and accountants and professionals and IT companies, lots of office users in a moderate square footage.”

Bittenbender cited the presence of advertising agency Callahan Creek as significant.

“Having office business, where they are professional or advertising or production, I think having those types of businesses downtown are tremendously important to keeping downtown a thriving location,” she said.

Irrelevant industrial space

Bittenbender said many businesses classified as industrial have taken flight from the downtown area, as zoning regulations repurposed their property as office space.

She said industrial businesses, such as auto repair shops, T-shirt printing companies and others that used to populate downtown, are largely irrelevant in an area that thrives with retail space.

“I think industrial uses over the decades have become less and less important in the downtown. Zoning does not allow for industrial uses downtown,” which is designated for commercial business, she said.

Citywide, industrial vacancy rates are healthy, the study reports. Vacancy across Lawrence sits at about 3 percent, while national industrial vacancy rates are about 6 percent. Downtown’s rate is 5.3 percent. It’s a healthy improvement from 2004, where vacancy in the industrial arena was about 9 percent citywide. It was just under 6 percent in 2003.

Bittenbender said that the 2004 spike can be tracked to a single business, E&E Display, which closed its doors in that year. Its 325,000-square foot building, located near 29th and Haskell streets, represented a sizable chunk of the city’s 9 million square feet of industrial space. The building is now fully occupied.

“Overall a theme is that Lawrence, in general, is a very small market, and when you have a property of any significant size that becomes vacant, it spikes that rate rather dramatically,” Bittenbender said.

Investing in the future

Bittenbender said increased tourism, a turnaround in population growth and a commitment to redevelopment is essential to keeping downtown Lawrence competitive and thriving.

“We need to figure out how we’re going to be more successful in that effort,” she said. “You can’t have a successful downtown that’s sustainable for decades without a residential population. When you combine all of those, they can give you a strong core.”

She cited the coveted and pricey districts surrounding Chicago’s Michigan Avenue and New York’s Central Park as examples of what a dedication to redevelopment can achieve.

“If Lawrence is going to be a highly successful and active downtown, we have to see what opportunities are out there for new mixed-use projects,” such as the Hobbs-Taylor Lofts property, 729 N.H., she said.

To do that would require a commitment from city leaders and community members, she said.

“It’s more expensive to develop an area that’s already developed. To offset that cost, communities such as Lawrence need to be willing to support increased density and participate in some infrastructure costs, otherwise there’s no incentive for developers to do that,” Bittenbender said.

But despite the challenges downtown faces, Sunflower Outdoor’s Hughes is optimistic about the area’s future.

“Downtowns all across the country are trying to reinvent themselves,” he said, citing efforts in Kansas City, Mo., and Ottawa to revitalize their city centers. “Lawrence never lost its downtown. People come from across the country and they plop in Lawrence and they think, ‘Wow, the place has a downtown.’ It’s never left.”