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September 23, 2024
Is Costco’s Apartment-Warehouse Combo a Good Idea?
Costco has broken ground on a new development in Baldwin Village, South Los Angeles, which will become the first Costco to include residential apartments above its warehouse.
Developed by Thrive Living, the project will feature 800 rental units, with 184 (23%) designated for low-income households, while the rest will serve as “non-subsidized affordable and workforce housing.” According to the company, the development is designed to accommodate families, seniors, and other residents, enabling them to “move laterally from within the community.” With a layout of 25% retail and 75% housing, it qualifies for city incentives under the Transit Oriented Communities program.
Located at 5035 Coliseum, this mixed-use development will offer not just typical Costco services but also optical services, a pharmacy, and delivery options. The retailer also intends to “deliver a state-of-the-art store featuring fresh produce [and] healthy food options for residents.”
This development aims to address the housing affordability crisis in Los Angeles, creating around 400 jobs and providing essential services to the community. The project is the first to proceed under California’s AB 2011 law, promoting mixed-use developments with affordable housing, as reported by NBC4 LA. Thrive Living plans to use modular design to keep housing costs low while the quality remains high. This includes adding amenities like secure parking, courtyards, a gym, urban gardens, and a rooftop pool.
Plans for this hybrid residential Costco began taking shape last year, according to the LA Times, and now construction has officially begun. Per NBC4 LA, Mayor Karen Bass and other city leaders gathered with project officials for a ceremonial groundbreaking at the site last Wednesday morning.
“Mayor Bass has declared a housing emergency in Los Angeles, and we’re answering the call. Our company is focused on addressing the severe housing affordability crisis in Los Angeles, while also attracting retailers willing to make long-term commitments and deliver community-serving products and services that enrich the living experience for our residents and neighbors.”
Jordan Brill, a representative for Thrive Living, via Thrive Living
Joe Rouzan, president of the Vermont Slauson Economic Development Corp, told the LA Times that the Baldwin Village area is a food desert, and he believes that “Costco would offer residents more options and would be a job generator. He’s also confident the developer’s vision has already signaled something that other big-box stores have not emphasized in the past — adding affordable housing.”
For Costco, the benefits are obvious. Investing in a mixed-use apartment building with retail space offers key advantages for retailers, as per CHRE:
- Increased foot traffic: Retail spaces benefit from direct access to residents, ensuring a steady stream of customers.
- Enhanced property value: Retail outlets can boost property value, as mixed-use developments typically appreciate faster than traditional residential buildings.
- Diversified revenue streams: Combining residential and commercial units creates multiple income sources, with higher rental rates for retail spaces.
- Lower investment risk: The mix of tenants spreads risk, providing a more stable investment, while promoting walkability and sustainable living.
Opinions on the new Costco apartment warehouse are already being discussed on social media. A post on Reddit sparked mixed reactions, with some users viewing it as an advantage, while others were opposed to the idea.
For those in favor of the new apartments above Costco, one commenter described how they lived in a similar setup of residential and retail that they enjoyed. The setup did not cause much noise for them, and they liked the convenience of having a retail store within such a short walking distance.
Another user compared it with a Costco in downtown Vancouver located next to a sports stadium. The user emphasized the positive aspect of its proximity and how “tens of thousands of people are able to walk to/from Costco. You just use a trolley/cart to carry your groceries or bigger items. It’s underneath a development with 3/4 high rises and right next to Yaletown (an urban residential neighborhood with about 40-50 thousand residents living in high rises).”
Those who are not too keen on the idea noted how hectic Costco parking lots are, with crowds of people and shopping carts being left near cars, possibly causing scratches and dents to vehicles. Others also think there would be too much noise and stress from the Costco apartment setup, with many pointing out the potential difficulty in finding parking as residents and guests.
Finally, one user dubbed the new Costco residential warehouse apartments the “Kirkland Towers.”
Discussion Questions
What are the implications of mixed-use developments, like the new Costco project in Baldwin Village, for urban retail environments and community engagement?
How might integrating essential services within residential spaces redefine consumer expectations in retail, particularly regarding convenience?
How can retailers balance the challenges of a vibrant shopping experience with residential comfort in high-traffic mixed-use developments?
Poll
Loading …BrainTrust
Lisa Taylor
Retail Consultant, JL Buchanan
David Weinand
Chief Customer Officer, Incisiv
Jenn McMillen
Chief Accelerant at Incendio & Forbes Contributing Writer
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In an urban area this is an effective use of land, especially for a store like Costco which has a large footprint. It also provides Costco with a relatively captive audience, which is helpful from a sales perspective. However, people nipping down from their apartment (many of which are relatively small) are not going to be buying in bulk like a suburban family, so it will be interesting to see whether Costco tweaks its proposition in any way. It will also be important that the layout ensures the usual chaos of Costco parking lots and gas stations is kept away from residential areas.
What’s the customer base for a typical Costco? 20,000…50,000…100,000?? (~600 warehouses in the US gives us an [admittedly rough] estimate of 500K) My cyncial self says this has more to do with harvesting Tax Credits and PR spin than rational retailing.
When averaged out it is around 127,000 per store – with a lot of variation depending on location and a bunch of other factors. There is no way Costco could sustain this store off custom from the apartments alone. But, having those people close by is a helpful benefit. I also think it is less to do with tax benefits, and is more a way to circumvent extensive planning reviews as mixed-use schemes are subject to less scrutiny and are viewed more favorably because they help resolve the housing shortage.
Exactly, the residential part helps with permitting of the store for the space. Costco doesn’t have to do it everywhere, just in areas where it is needed to help with land use permitting and PR
Astute observation on the “buying in bulk” versus not. If they don’t change the assortment, not sure that the retail side of this makes a lot of sense. It has worked well in cases for Trader Joe’s although parking was a nightmare in those few cases and not sure I’d want to have to compete with the traffic to get into my apartment.
Color me intrigued. Costco has to invest in the real estate, so why not maximize the value of that footprint by building up? It has the benefit of having a captive audience up top, but it would be interesting to see if Costco varies the assortment away from the suburban audience to an urban one. There are also some healthy tax benefits in there for the warehouse giant, so let’s just be honest about why subsidized housing is part of the equation. As to the nitpickers on parking, imagine a parking structure just for residents located away from the main entrance. Happens all the time in cities.
I’d love to have seen some site plans or blueprints or…well anything other than the (sorry, but totally) useless stock photo; because I’m having major problems with picturing houses atop the typical Costco big box. More generally, while I’ve no problems with this on any kind of ethical or philosophical level, I’m skeptical of it amounting to much: despite what you may read, America still has plenty of vacant land, or at least repurposeful land that would be better suited for housing.
Air space is a thing now. And I think it’s a nice idea. It’s a bit much down in Miami, but it’s all high end
Air-rights over a buidling 50 or 100 feet deep makes sense…but a 300ft square big box? Exactly why I’d love to see a floorplan.
There are some digital renderings here:
https://la.urbanize.city/post/costco-anchored-development-5035-coliseum-st-breaks-ground
Thanks Neal! It’s considerably more massive than I had imagined – really more like a store under an apartment building, as opposed to apartments perched atop a warehouse. The Costco itself also seems a little on the small side – I don’t see the floor area actually mentioned anywhere – tho that may be illusory.
The renderings really help and it appears as I would have imagined. Given the apparent size, a full-size Costco should fit fine.
The Corners of Brookfield in Brookfield, Wisconsin has condos built around its footprint. The retailers there include Van Maur and other higher end stores and it seems to be working. So why not a Costco version?
Frankly, I love the idea of affordable living above a Costco. We could use more creative ideas like this one.
My opinion on whether I’d live there is not so relevant. I don’t like apartment buildings. But this is for low income residents, is close to an inexpensive, high quality store, and maybe even an employment opportunity. I love it. I have no words for the mixed use places they’ve built in Miami, but the do all have indoor parking lots
Paula, you bring up a valid point. You have a larger AIP in Costco than a value grocer would be in the same space. Will Costco modify its assortment(maybe add to their private label line?) to the neighborhood so it can support everyone who lives in the apartment complex? My guess it will be trial and error until they get the assortment that will please the customers that live on top and those that will travel thinking it is just like the other Costco’s they might normally shop at in weekly trips. Whole Foods thought they could survive in this type of landscape but unfortunately the dollar is the bottom line.
I wonder if the captive market over Costco will even be frequent customers, if the apartments are small and occupied mostly by one or two people?
Additionally, since lower cost housing is one of the stated objectives, this might also not be the right market to count on for frequent business. Sams and Costco offer good value, but hernia sizes are expensive.
Aside from having a resident customer base, Costco’s use of the building and lot to rent apartments is a brilliant idea. Db
Great idea to maximize the usable space of the property in expensive LA. Costco may not need to change its assortment to accommodate apt. dwellers if it can help promote residents going in on bulk purchases at their Costco store — thereby creating a sense of community that is often lacking in large apt complexes. Wall Street Journal reported in July that young adults are battling higher prices by turning to bulk purchases, splitting their food costs with others, and getting club memberships.
I applaud Costco on this initiative. Given that governments have not been able to the solve housing issues that persist in virtually every community. People go to Costco anyway, so why not live close? The way humans live together is evolving, and developers are creating new living/shopping/working environments like this example. Only time will ultimately tell how successful this will be, but there are plenty of great examples of mixed-use space in the world and so I expect that we will see more of this in the future.
Costco “gets” suburbia. This is their opportunity to understand apartment living by testing out creative ways to integrate the store and living space and make them exclusive to those that live there. A subscription service for essentials like toilet paper, paper towels, etc that take up a lot of room, but residents could pick up smaller quantities on a monthly basis so all their storage isn’t used. Carts that can be taken up into apartments, or a dumb waiter concept that can send your purchases right to your home. The potential is there to innovate and learn
We’re all used to seeing a suburban Costco location, and this feels like a great way to explore how a Costco offering would work in an urban setting. Sure, many of the residents may not need to buy large bulk quantities of merchandise like their suburban counterparts, but I suspect there are plenty of consumable items they could buy at Costco quite conveniently in this example. The mixed-use retail/residential format is a good approach to affordable housing and honestly a configuration most cities are used to seeing. That the retailer is a big box store this time is somewhat unique but very intriguing at the same time. I Expect this will be a win for Costco and we may see more of this in the future.
While this concept is not new, the fact that Costco is involved will likely draw more interest and certainly media coverage (case in point). My first thought was similar to Neil’s—how many bulk items will fit in an affordable housing unit? Regardless, LA clearly needs more affordable housing, and if Costco can help contribute even a small percentage, it’s a PR win for sure and a built-in customer base.
This Costco mixed-use project in South L.A. is a one-off, not a new strategy, so I’d examine it on its specific potential .
Number one, I see it as a way to sweeten the ROI on its real estate investment in the site. Both rental income and equity value. Since I don’t think I’ve ever known of a Costco to sell off a property, the latter would be “on paper” of course, but ithis building would add incrementally to corporate value.
There is the local tax benefit, of course.
I do not view the 800 residential units as a built-in customer base for this store, however. Costco doesn’t cater much to apartment dwellers, with its huge product sizes. A typical Costco would have to draw from a mu,ch wider geography.
The true test of these new apartments of course, will be the roominess of their pantry closets.
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Good for Costco to think out of their own big box and to test a new formula for highly urban areas. I applaud the creativity and am rooting for this to be a giant success. A few changes Costco will have to make include smaller pack sizes, new fresh food offerings other than the $1.50 hot dogs and pizza slices and a larger food court area. These are not huge changes, but certainly embody a different set of execution tactics vs its highly successful bulk strategy that has made Costco what it is today.
What will they do about traffic for residents during Costco business hours? The residents are unlikely to be regular Costco customers unless A) Costco changes its assortment or B) The building buys in bulk from Costco and has a shop that resells individual items to residents. But even with that fix in how to make residents Costco shoppers and potentially Costco fans to offset the inconvenience, the traffic around Costco during the day and especially on weekends is a nuisance. Even a dedicated resident entrance could be hard to access during certain dayparts. A Costco apartment may be a novelty for year one. The leases resigned in year 2 will be an interesting stat.
Great opportunity for Costco to test this “new” concept for them, hopefully learning from their experience in some urban stores as well as the experience of other retailers (grocery, department, hardware, drug, etc.) who have been doing the same in a variety of locations from Manhattan to uptown Raleigh. They will draw their usual customers and may draw a few residents of the apartments, likely for prepared meals, prescriptions, eyeglasses, clothing, books, gifts, small appliances, and merchandise for occasional entertaining.
When I lived in China I was initially surprised at how many apartment complexes were anchored with malls and grocery stores on the first floor. And just as quickly I was surprised that I didn’t see more of that exact idea here in the USA. I’ve since regarded it as a no-brainer. We can argue the details of whether or not it will work for Costco, but I suspect it will do just fine. And I think it will set an example for further rethinking of mixed-use retail/residential buildings
This plan checks some nice boxes—sustainable development, affordable housing, and a commitment to the community—all great for Costco and its brand equity. I don’t think we should be looking at this development as anything more than that. Building housing over a store because you think that’s where your customers are going to come from is a huge mistake, even for small businesses. This is a real estate development opportunity and a PR opportunity, not a market growth opportunity.
Actually it is very common in city planning to have residential highrises with retail on the bottom floor. I live in on in San Francisco with a coffee shop and real estate office. There are other builders with Whole Food on the ground floor. Hopefully they have designed the residential parking structure entrance to be away from the Costco shopping entrances. Frankly I think this is more the case to help Costco with the land use permitting process, maybe they will throw it special promotion for furniture delivery for the residents of the building LOL
With 23% of the units being designated for low income households (IDefined as below $80K annually for a two income household in Los Angeles) this particular development is destined for “averageness”. Yes I made that word up. $80,000 used to be a lot of money, but no longer, at least not in California. The expectations seem reasonable (captive foot traffic for one) however if almost a quarter of the residents are low income, how is that attractive to other tenants who can afford market rents?
This development sounds like a social engineering experiment that is destined to be average in terms of results. If, however Costco’s average customer based is 23% “low income” MAYBE it can work.
My bet would be against it, but in the end only time will tell.
This is just a bad idea. Costco is straying away from their core competency, and their key target audience. Costco sells products at a discount to volume customers who are part of a middle to upper middle class audience. They do not sell their products to poor clients, because they cannot afford to pay for the annual membership fees, plus the average ring (because of the larger volume products they sell) is much higher than traditional retailers. From their focus on selling volume, high-quality products, to larger item sizes, Costco knows that their target market has a car, often a home of some type, and more mouths to feed than just 1 person. This means that Costco doesn’t offer small sizes of most things, and usually start out offering large and Xlarge volume sized products so that their consumer can maximize their value. Bringing low-income, mixed use housing into their target market is a poor decision that doesn’t reflect on their current target market.