The town can attract more retail stores, officials say, but first must work through the limits of past policy decisions and debate about what it wants.
Shops, offices and apartment complexes now provide about 16 percent of Chapel Hill’s property tax revenue; the rest comes from homeowners. Durham gets about 40 percent of its property tax revenue from commercial development; Wake, about 35 percent.
Chapel Hill’s commercial tax base could grow by two to four percentage points over a decade, adding at least a million square feet of retail, said Dwight Bassett, town economic development director.
“I think that there are some really great opportunities if we’re strategic,” he said in an interview last week. “We’ve been exploring how we can help (the Town Council) understand what that potential is.”
While Orange County is first in the state in average income per person, it ranks 81st out of 100 counties in retail sales tax per person because residents spend more money in other counties.
A 2011 study found a sea of grocery stores and restaurants in Chapel Hill, but a big shortfall in nearly every other category, especially general merchandise and auto dealerships.
In the past, retailers passed on Chapel Hill, with its reputation for being a tough place to get off the ground. Other are interested but aren’t sure they can succeed here, Bassett said.
“Just because we want them does not mean that the company can figure out how to make the cost of land, the cost of rebuilding, work so that they can afford to be here,” he said.
Challenges and tradeoffs
The consequences of too little retail are obvious: higher property taxes, more lost jobs and tough economic choices.
Orange County’s 30-year-old rural buffer is a major challenge because it limits where business can grow, pushing up the cost of available urban land that already costs more because of steep slopes, rocky plateaus, streams and wetlands.
Town Council members have suggested allowing some commercial use in parts of the rural buffer – near Interstate 40, for example. That move would bring an additional cost for water and sewer infrastructure.
Other tradeoffs could include helping developers of the Edge mixed-use site on Eubanks Road pay $3.5 million for better roads, or assuming $10 million in debt to make stormwater and street improvements that encourage redevelopment in the 190-acre Ephesus-Fordham district.
“We are where we are, because we made decisions in the ’80s and ’90s (that made us) this place,” Bassett said. “If this is not who we want to be in the future, then we need to think about policies, we need to think about regulatory environment, we need to think about development finance, and make strategic decisions as we’re balancing our market back out.”
Edging into the future
The work so far has focused, in part, on streamlining the town’s development process, including establishing a form-based code for the 190-acre Ephesus-Fordham district.
More certainty will help attract retailers, developers said. It may take time, however, for market trends to catch up, officials said. Investors are putting money into apartments right now, but little else.
The Edge developers, for example, asked to use up to 75 percent of the space for apartments in their original plan. The developers of Carolina Square at 123 W. Franklin St. have asked to build apartments instead of some approved office space.
More apartment dwellers can be beneficial, town and development officials said, because they shop at stores within walking distance and their landlords pay commercial taxes. The market for apartments won’t last forever, Bassett said.
Chapel Hill, meanwhile, needs to find its community vision, developers said.
Rachel Russell, vice president of real estate development with Grubb Properties, said they could fill Glen Lennox with large stores, such as Target, and “a ton of retail,” but that’s not what residents want. The retail, office and residential project on N.C. 54 East was approved in June.
They’re starting to court tenants, Russell said, and, while there’s nothing definite yet, just having an approved project creates excitement.
Creativity and strategy
The best developments start with a couple of large anchors to lure a regional crowd and build character with local stores, said Ted Zoller, director of the Center for Entrepreneurial Studies at UNC’s Kenan-Flagler Business School.
The modern retail project differs from traditional, prepackaged retail centers that siphoned sales from local businesses, he said. Shoppers now want an experience, not to buy goods and services, he said, noting University Mall is an exciting example, with the potential to strengthen the whole district.
“I think that local retailers add a real flavor to the community,” he said. “They add a distinct character to the community, and we should do everything from a policy standpoint to support locally owned retail but not at the expense of losing a tax base.”
Obey Creek is a good place for the town to think creatively, developer Roger Perry and others said. The town won’t know what it can get until it gives retailers the opportunity, Perry said.
“If it’s properly regulated and measured, market forces will adapt to do what (they’re) allowed to do,” he said.
Southern area resident Susan Lindsay suggested talking with big-box retailers, such as Walmart and Target, about building one of their smaller stores in Obey Creek, and at the same time, adding features to bridge the divide between digital and physical shopping,
New ideas include “pop-up” locations for online retailers, said Lindsay, who is executive editor at online retail consultant Brick Meets Click. Another option is letting customers order online from Obey Creek retailers and providing a central pick-up location for their purchases.
It takes $150 million in new investment to add one percentage point to Orange County’s commercial tax base. Chapel Hill won’t catch up with its neighbors, even at the maximum possible growth, they said.
The trend toward higher-end stores also will continue, Bassett said, because the town doesn’t have enough residents earning under $75,000 to keep cheaper retailers.