Vol. 1, No. 7 .

A biweekly dispatch from BrandView on retail, mixed-use, and the neighborhoods where culture meets capital.

OUR TAKE

There is no harder square footage to lease in a retail driven mixed-use building than the space 15 steps above a thriving ground floor tenant. Same intersection, same building, often better light and more square footage, and yet the market prices it like a consolation prize. We've tested nearly every concept imaginable in these spaces. Here's what we've learned, what works, and why most owners are still getting this wrong.

THE SIGNAL

In most Southern California retail corridors we operate in, second floor space trades at 35–55% of the ground floor rent for the same building. The square footage might be equivalent. The buildout might be superior. It might even have an unobstructed view of something beautiful. But the the tenant demand drops not because the parking ratio changed. What changed is the elevation, and with it, the entire psychology of how a consumer decides whether to walk in.

Ground floor retail survives on impulse: the coffee shop you didn't plan on, the boutique you glanced at through the window, or the restaurant you ducked into because the line out front signaled something worth trying. These are all impulse decisions made before the body commits to movement. One flight of stairs eliminates most of them.

But that’s not necessarily the case for cities like SF and NYC. While SF and NY have both absorbed their post-pandemic office corrections and are seeing meaningful retail recovery, LA is still trailing in return to office and even shifting entirely.

SF has found a path to second floor retail in salons and appointment-only designer apparel have genuine traction on second floors in the right neighborhoods. New York barely registers it as a problem: the six-flight walkup to your apartment makes a second-floor retailer feel effortless.

For LA, the city's built form was already working against vertical retail before the pandemic. Wide thoroughfares, surface parking at grade, storefronts designed to be seen from a car at 35 mph. The consumer reflex for walking upstairs simply isn't there.

THE STREET VIEW

We've run the experiment. Appointment-only apparel, elevated personal services, high-end salon suites, members-only private clubs, third-space wellness concepts — we've tested all of it across our portfolio, and we've talked to operators who've tested the rest. The through-line on what works is simple: the concept has to give the customer a reason to climb the stairs before they arrive. Yes, the second floor penalizes impulse but it rewards intention.

That sounds obvious, but most retail leasing is still optimized for impulse discovery. The brand that wants ground floor visibility because their customer doesn't know they want them yet. Second floor retail requires the opposite: a customer who already knows, already booked, already decided. The staircase isn't the problem. The awareness gap is.

The concepts that solve this share a few traits. They're destination-driven by nature (boutique medspas, specialty fitness, high-end tailors, experiential showrooms, and private membership concepts all have pre-committed customers by the time they step foot on the property. They benefit from a degree of privacy that ground floor actually undermines. And critically, they've figured out that social media and online brand discovery have relocated the "window" from the sidewalk to the phone screen. The discovery happens on Instagram or Google. Now, the staircase doesn’t deter consumers, it just confirms the address.

Now, what we underwrite differently in second floor space is the tenant's acquisition channel. If a retailer's customer requires storefront visibility to convert, the second floor is the wrong space regardless of rent (no matter the discount). If the tenant has built an audience (appointment flow, membership base, social following) then the second floor can often be the better location. Less noise, more focus, and often more room for buildout quality. The elevator button, not the window display, becomes the brand moment.

The buildings that solve this aren't solving an architecture problem. They're solving a curation problem. As the office market continues to sort itself out city by city, the gap between owners who understand how to position upper-floor space and those who don't will only widen.

Until next time,

The BrandView Team

BrandView Inc is a fully integrated commercial real estate platform based in Los Angeles. We buy, operate, and manage neighborhood retail and mixed-use across the Western U.S.

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