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Estimating Commercial Land-Use Conversion: Case Study of Athens-Clarke County, Georgia Arthur C. Nelson, PhD, FAICP Presidential Professor and Director of Metropolitan Research University of Utah Grace Bjarnson University of Utah The authors gratefully acknowledge assistance in research leading to this paper provided by Nicole Sitko and Kelly A. Beavers of the Metropolitan Institute at Virginia Tech January 2010
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Introduction
Investment in urban areas rise and fall, then rise again as new buildings age, deteriorate, become
“ripe” for conversion, and make way for new development usually at a higher intensity. One of
the challenges facing planners is predicting when commercial properties may become “ripe” for
conversion to other uses. Despite the presence of theory on when properties conceptually ripen
for conversion (for a seminal work see Bourne 1967) and texts on how to evaluate the financial
feasibility of commercial properties under different scenarios (see Geltner, Miller, Clayton and
Eichholtz 2006), the planning literature is generally not helpful. This article for Practicing
Planner presents an approach planners may use to estimate when commercial structures may
become ripe for conversion within planning horizons. It uses a case study of Athens-Clarke
County, Georgia to illustrate the concept and its application. The article begins with a review of
growth trends facing Athens-Clarke County (a consolidated city-county), the analytic approach
used to estimate ripeness for conversion of commercial properties along commercial corridors,
application of the method to those corridors, and planning implications for the city-county.
Lessons can be generalized.
Athens- Clark County Growth Trends
Athens-Clark County just like most urban areas in the United States will see growth in their
population and job market. Projections for the area suggest that between 2007 and 2020 Athens-
Clark County’s jobs will increase by over 21,000, with almost 8,000 of these new jobs being
within the commercial sector. The main question addressed in the study was whether or not this
future growth in commercial jobs would require the city-county to increase its zoned supply of
commercial land during that same time period. The critical process of identifying those parcels
that may be “ripe” for redevelopment by 2020 is described below.
Method
Knowing when structural depreciation combined with sustained economic growth leads to
specific structures becoming replaceable is a key to planning especially for transportation and
utilities. As structures are replaced, new ones are built presumably achieving the highest and best
use of the site. Normally, this means new structures use land more intensively than the ones they
replace. How can we estimate when a structure becomes ripe for redevelopment?
Conceptually, every structure wears out and needs to be replaced. The aging process is called
"depreciation". It comes in three forms. Depreciation through economic obsolescence occurs
when the function for which a structure as built is no longer suitable for its initial intent, and the
structure is simply no longer functional. Steel manufacturing plants come to mind. Depreciation
through functional obsolescence occurs when the structure is no longer needed for its initial use
but could be rehabilitated for another use; converting warehouses into residential lofts comes to
mind. Mostly, however, we deal with physical depreciation, reflecting the wear and tear on
structures leading eventually to their replacement. (See (see Geltner, Miller, Claton and
Eichholtz 2006).
The study is limited to nonresidential structures for several reasons. First, they are replaced faster
than residential structures. Second, they tend to be on corridors that are more suitable for higher
intensity redevelopment than residential parcels. Third, nonresidential parcels are usually larger
and more easily combined with other nonresidential parcels for redevelopment than residential
ones. Fourth, it is probably easier, politically, to redevelopment nonresidential areas than
residential ones.
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Each nonresidential structure has its own rate of depreciation. The rate for each structure varies
by natural wear and tear, and by urban land inflation. Structure depreciation is estimated by
numerous sources; we use Marshall and Swift's Valuation Service (2007). Although hundreds of
depreciation schedules were provided, the county assessor culled the list to identify and make
use of those schedules that most accurately compared to properties in Athens-Clarke County
Knowing exactly when a structure is ripe for redevelopment is open to debate. For our purposes,
we used a simple model that assumed when the land value exceeded the depreciated structure
value placed on that land the parcel was ripe for redevelopment. Normally, as structures
depreciate land appreciates. Consider a structure with a 20-year useful life on a parcel of land
worth 20 percent of the total value, and that land appreciates by a constant (uncompounded) one
percent point annually. The structure becomes ripe for redevelopment in about 13 years. Even
without land appreciation, the structure becomes ripe for redevelopment in 16 years. (See figure
1.)
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Structure Age
0
20
40
60
80
100
120
Uni
ts o
f V
alue Building Value
Constant Land Value
Inflated Land Value
Figure 1. Plot of ripeness for redevelopment of a 20-year structure with no land
appreciation and with constant (non-compounded) appreciation at one percent annually
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We estimated the year of ripeness for conversion for each parcel as follows:
1. We defined all structures as ripe for redevelopment when land value exceeds structure value.
2. We did not assume inflation or land value appreciation. This provided a conservative estimate
of potential commercial redevelopment within the specified time frame.
3. Using assessor depreciation schedules which were based on Marshall and Swift’s Valuation
Service, we estimated the year when every commercial-oriented structure within the county
would become ripe for redevelopment.
4. We combined parcels ripe for redevelopment cumulative from 2007 (the base year of the
study) to 2010 and 2020.
Analysis
The method was applied to the five principal commercial corridors in Athens-Clarke County (see
figure 2). Initial mapping of parcels ripe for conversion by 2010 and 2020 was “ground-truthed”
by staff of the Athens-Clarke County planning office. Figure 3 shows a close-up of how we
mapped the “Business” corridor commercial parcels “ripe” for redevelopment by 2010 and by
2020. Table 1 provides an overall summary of all five focus areas. Table 2 summarizes the
analysis for each focus area over the period 2007-2020 while Table 3 does the same for the
period 2010-2020.
We then compared the supply of those parcels ripe for redevelopment by 2010 and 2020 to the
demand for growth-related commercial development. For this, we first estimate the demand for
space-consuming jobs each year, using the technique developed by Nelson (2004a), reported in
Table 4.
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Figure 2. Index map of commercial corridor focus areas.
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Figure 3. Detail of Business Corridor focus area.
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Table 1
Overall Summary
Total 2007-2010 2011-2020 2007-2020
Acres 1,280 492 1,772
Square Feet of Improvements 14,202,050 4,528,694 18,730,744
Improvement Value ($) 236,379,170 133,668,324 370,047,494
Land Value ($) 277,835,827 98,974,006 376,809,833
Improvement to Land Value Ratio 0.85 1.35 0.98
FAR 0.25 0.21 0.24
*Parcels included for assessment in this study were those with commercial, employment, and industrial zoning classifications only.
Table 2
Projected to be feasible for redevelopment, 2007-2010
Focus Area Acres SF of
Improvement
Improvement
Value Land Value
No. of
Parcels
Improvement
to Land
Value Ratio
FAR
Business 486.2 10,615,834 134,001,079 115,008,959 405 1.17 0.50
Downtown 207.4 2,019,071 60437434 108,975,695 108 0.55 0.22
Northeast 188.3 164,825 5,269,191 10,067,554 34 0.52 0.02
Southeast 287.3 940,860 29,017,236 38,693,106 110 0.75 0.08
Employment 110.6 461,460 7,654,230 5,090,513 27 1.50 0.10
Total 1279.7 14,202,050 236,379,170 277,835,827 684 0.85 0.25
Table 3
Projected to be feasible for redevelopment, 2011-2020
Focus Area Acres SF of
Improvement
Improvement
Value Land Value
No. of
Parcels
Improvement
to Land
Value Ratio
FAR
Business 101.3 927,887 36,038,422 24,188,939 42 1.49 0.21
Downtown 79.8 2,399,659 59,891,196 41,568,938 91 1.44 0.69
Northeast 72.1 386,323 8,743,140 6,067,225 27 1.44 0.12
Southeast 80.2 591,570 24,040,134 17,766,114 41 1.35 0.17
Employment 158.4 223,255 4,955,432 9,382,790 40 0.53 0.03
Total 491.9 4,528,694 133,668,324 98,974,006 241 1.35 0.21
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Table 4
Space Consuming Jobs each Year
Year Jobs
2007 80,820
2008 82,203
2009 83,587
2010 84,970
2011 86,350
2012 87,730
2013 89,110
2014 90,490
2015 91,870
2016 93,246
2017 94,622
2018 95,998
2019 97,374
2020 98,750
Growth 17,930
Source: Estimated by authors.
Assessor records indicate that the 80,820 commercially-related jobs occupying space occupied
about 39,427,375 square feet of space, or about 488 square feet per job. This compares favorably
with Nelson’s (2004) analysis of space consumption nationally. For planning purposes, each
commercially-oriented job is assumed to consume about 500 square feet of space. Table 5 uses
this estimate to project commercial space needs.
Much of the existing commercial space will be replaced over time. Nelson (2004b) estimates that
commercial space is replaced about every 25 years with many retail spaces replaced in half that
time but more durable office space twice that. Table 5 estimates commercial space that may need
to be replaced over the period 2007 to 2020.
In all, Table 5 shows that Athens-Clarke County may need to build about 31.6 million square
feet of commercial space between 2007 and 2020. Of this space, 9.0 million is estimated to be
needed to support job growth while 22.7 million square feet will be replaced. Assuming a
conservative cost of $90 per square foot of space, the value of this construction is estimated at
about $2.8 billion (in 2007 dollars).
Converting square feet of space needed to acres of land needed to be zoned for commercial
development entails two steps. First, the current floor area ratio needs to be estimated to gauge
current conditions. Second, reasoned estimates of FARs for the future need to be determined.
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In 2007, assessor data from Athens-Clarke County indicate about 39.4 million square feet
occupies about 3,771 acres of land. This converts to a floor area ratio (FAR) of:
39,427,375 square feet ÷ (3,771 acres @ 43,560 square feet per acre) = 0.24.
Table 5
Estimated Commercial Space Construction Needs, 2007-2020
Year Total Space
Growth-
Related
Square Feet
Replaced
Square Feet
Total Square
Feet
Constructed
2007 39,427,375
2008 40,119,042 691,667 1,577,095 2,268,762
2009 40,810,708 691,667 1,604,762 2,296,428
2010 41,502,375 691,667 1,632,428 2,324,095
2011 42,192,375 690,000 1,660,095 2,350,095
2012 42,882,375 690,000 1,687,695 2,377,695
2013 43,572,375 690,000 1,715,295 2,405,295
2014 44,262,375 690,000 1,742,895 2,432,895
2015 44,952,375 690,000 1,770,495 2,460,495
2016 45,640,375 688,000 1,798,095 2,486,095
2017 46,328,375 688,000 1,825,615 2,513,615
2018 47,016,375 688,000 1,853,135 2,541,135
2019 47,704,375 688,000 1,880,655 2,568,655
2020 48,392,375 688,000 1,908,175 2,596,175
Total 8,965,000 22,656,435 31,621,435
Source: Athens-Clarke County Assessor for space in 2007, authors for other estimates.
Table 6 estimates the land area needed to meet projected space needs if FAR policies continue at
the current average or are modified to 0.25, 0.30, 0.35, and 0.40. Suggested FAR figures are
estimated at or below 0.40 to ensure that parking schemes do not require decked parking
structures.
Table 5 shows that a city-county wide FAR of 0.30 or higher would be sufficient to meet
projected commercial land use needs. This assumes all existing commercial development is
redeveloped to at least that FAR, which is unlikely.
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Table 6
Commercial Land Area needed based on Different FAR Targets
Year
Total
Projected
Space Needs
Acres Needed at
Current FAR
Average Target FAR Policy of
0.24 0.25 0.30 0.35 0.40
2007 39,427,375 3,771
2008 40,119,042 3,837 3,684 3,070 2,631 2,303
2009 40,810,708 3,903 3,748 3,123 2,677 2,342
2010 41,502,375 3,969 3,811 3,176 2,722 2,382
2011 42,192,375 4,035 3,874 3,229 2,767 2,422
2012 42,882,375 4,101 3,938 3,281 2,813 2,461
2013 43,572,375 4,167 4,001 3,334 2,858 2,501
2014 44,262,375 4,233 4,064 3,387 2,903 2,540
2015 44,952,375 4,299 4,128 3,440 2,948 2,580
2016 45,640,375 4,365 4,191 3,493 2,994 2,619
2017 46,328,375 4,431 4,254 3,545 3,039 2,659
2018 47,016,375 4,497 4,317 3,598 3,084 2,698
2019 47,704,375 4,563 4,381 3,650 3,129 2,738
2020 48,392,375 4,628 4,444 3,703 3,174 2,777
Source: Space and land area in acres for 2007 from Athens-Clarke County Assessor, calculations by
authors.
We then assess the redevelopment potential of five focus areas. It shows that roughly 1,770 acres
are likely to be redeveloped over the period 2007 through 2020. If the FAR of the redeveloped
sites is increased from its current average of 0.24 by 50% to 0.36, the net change in FAR may be
more than sufficient to meet future commercial development needs, estimated at 9.0 million
square feet. This is illustrated below:
(0.12 FAR change) x (1,770 acres @ 43,560 square feet/acre)
= 9.3 million square feet
This finding suggests that Athens-Clarke County need not consider expanding the supply of
commercial land at least until the next plan update process.
The study found that by raising the FAR of new development and redevelopment to between
0.35 and 0.40 – thereby raising the existing FAR modestly from 0.24 to about 0.30, the current
zoned supply of commercial land in Athens-Clarke County may be sufficient to meet current and
projected commercial development needs to 2020. This excludes currently vacant industrial land
that may be converted to commercial uses, or more rapid redevelopment of commercial sites
than the study estimates. Further, no more land should be considered for a change to its future
land use designation to allow for commercial. The assessment is based on the foregoing analysis
plus these additional considerations:
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More than 4,000 acres of other land zoned for nonresidential and nonagricultural land
uses provides additional supply for unforeseeable, large-scale development.
The 0.35 FAR threshold applied to redevelopment prospects presented in this assessment
is lower than the 0.40 FAR Athens-Clarke County already applies to targeted
commercial/mixed-use areas.
The analysis excludes consideration of the use of decked, tuck-under, or other forms of
parking that can raise FAR levels.
The analysis does not consider the extent to which pending Federal law and/or market
forces will lead to small automobile sizes and thus small parking stall footprints than can
also raise FAR thresholds.
Any study which assesses future redevelopment should also suggest that future proposals to
expand the supply of commercial or other development to meet specific, unforeseen needs
should be considered. These studies are only intended to provide greater clarity on future land
use needs by taking into account redevelopment within the area. The Athens-Clark County
study encourages periodic review of redevelopment characteristics to guide future decisions
about the supply of projected commercial or other land use needs for the community.
Planning Implications
Broader implications for planning generally are suggested. As a rule of thumb, the analysis found
that when the value of land approaches or exceeds the value of physical improvements
approaches, a commercial property becomes ripe for conversion (see also Knaap 2001.)
Second, that conversion is usually the removal and reconstruction of the physical improvements.
Unless they have historical significance or are unusually durable constructed, it is unlikely that
many commercial structures would be rehabilitated to serve any use, commercial or otherwise.
The reason is that commercial structures are usually built to serve a specific function during a
short-term (10- to 20-year) investment horizon (see Geltner and Miller 2000) so, by design, they
are not built durably.
Third, as commercial areas ripen for conversion they will likely become areas of disinvestment,
rising vacancy rates, and lower rents. If an area is growing and/or if new investment is steered
into existing commercial areas (through planning, redevelopment policy, natural barriers, or a
combination) the older commercial structures will give way to newer ones. The cost of
demolition and rebuilding combined with the probable economics of more expensive land along
existing commercial corridors requires that new structures boost their economic productivity
levels. This implies that less intensive disinvested commercial areas will be replaced by more
intensive land use areas with higher FARs.
Finally, as land use intensities rise there may also be opportunities to mix land uses, especially
adding residential development. This kind of transition from a commercial use to a multi-use
area may be aided through the investment of alternative public transportation modes along
current commercial corridors. Given its small population base, Athens-Clarke County is
anticipating adding bus service along the corridors, and improving pedestrian and bicycle
options. In larger urban areas, bus rapid transit, trolleys, and light rail may be additional options.
It seems that the future economic vitality of America’s metropolitan areas is tied to the
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redevelopment of existing commercial corridors. Facilitating these transitions may be up to
planners. Being able to anticipate today when corridors may become ripe for conversion is the
first critical step in this process. As planners use the redevelopment principles described above
they will be able to work together with policy makers to create mechanisms to encourage wise
conversion when the opportunities arise, rather than impede them by simply not knowing when
the time has come to reshape them.
References
Bourne, Larry S. 1967. Private Redevelopment of the Central City: Spatial Processes of
Structural Change in the City of Toronto. The University of Toronto, Department of Geography
(Toronto).
Geltner, David M. Norman G. Miller, Jim Clayton and Piet Eichholtz 2006. Commercial Real
Estate Analysis and Investment, second edition. Southwestern Publishing (Oklahoma City OK).
Knaap, Gerrit J, Ed. 2001. Land Market Monitoring for Smart Urban Growth. Lincoln Institute
of Land Policy (Cambridge MA)
Marshall and Swift. 2007. Valuation Service. (Los Angeles CA)
Nelson, Arthur C. 2004a. Planners’ Estimating Guide. American Planning Association (Chicago
IL).
Nelson, Arthur C. 2004b. Toward a New Metropolis: The Opportunity to Rebuild America.
Brookings Institute Metropolitan Policy Program, Discussion Paper.
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