VIRGINIA BEACH, Va. (WAVY) — In the last year, at least two shopping center developers went before local city councils to ask what may seem like an unusual request: permission to convert part of their property into an apartment complex.

Initially, many might have raised eyebrows about such a move, with parking lots for people’s homes sharing space with stores in a suburban environment.

But those who study the retail real estate industry say to expect more requests like them to come.

Construction is already underway at the more than 55-year-old East Beach Marketplace in Norfolk, where 96 apartment units are on the way in.

On the way out? The eastern half of the 23-acre shopping center.

The proposed layout of Kemps River Crossing following redevelopment. Existing shopping center buildings are in purple (Courtesy: City of Virginia Beach)

The same thing is happening at the nearly 21-acre Kemps River Shopping Center in the Kempsville area of Virginia Beach.

There, approved plans call for more than 220,000 square feet of retail space to be shrunk to just more than 81,000 square feet, and a 322-unit apartment community with pool and clubhouse to be added.

Both centers are owned by local families and are situated on busy intersections.

However both have struggled to fill vacancies, with Kemps River reporting more than half of its storefront space empty.

Vacant storefronts at East Beach Marketplace (WAVY Photo/Corby Slaughter)

Hampton Roads is actually currently facing historically low vacancy rates of 4.3%, according to Cushman & Wakefield, a global real estate services firm. It means new openings continue to outpace the closings.

However in Kemps River’s case, its previous largest tenants, Super K-Mart and Farm Fresh, closed in 2017 and 2018, respectively. And since then, only a portion of the former K-Mart space was leased to Planet Fitness.

Nick Egelanian, president of SiteWorks Retail, said it’s a dilemma affecting strip centers, as well as regional shopping malls, nationwide.

“In the 1990s and early 2000s malls were already built. The country was covered with them, close to 3,000 of them,” Egelanian said. “But we were building strip centers at a very rapid rate. A rate that was way in excess of population group.”

Essentially, Egelanian argues “too much space was built.” Not unlike with regional shopping malls, it has created an environment of survival of the fittest.

“If (one) center has become dominate in an area and (another) center has under leasing it’s an opportunity to redevelop,” Egelanian said.  “Residential has been a darling … it makes economic sense in many cases but it makes planning sense in a lot of cases.”

However, he warns only if it’s done correctly.

Demand for housing remains high in the United States, especially for affordable housing.

East Beach Marketplace agreed to set aside four of their nearly 100 units for workforce housing units, meaning they are “deemed affordable to individuals earning between $39,300-$52,400,” according to a city memo.

Egelanian said what will be key to the complex’s success, is how synergy is created between the retail and residential.

“Exactly how they manage nexus between the two will be interesting,” Egelanian said.

While neither the owners of East Beach Marketplace or Kemps River Crossing agreed to 10 On Your Side’s request for an interview, Ramsay Smith, president of Pembroke Realty Group, said layout is a valid concern.

“Layout of the property is a big concern of mine it was always since the very beginning,” Smith said.

Smith is leading a similar redevelopment project of his own at Pembroke Square, formally Pembroke Mall.

The $161 million redevelopment plan, includes construction of a new hotel, more than 300 apartment units, senior living facilities and parking garages in which the city is pitching in $24 million.

Demolition has begun inside the traditional interior mall, which was the region’s first, opening in 1966.

Smith said it was difficult to say goodbye to longtime tenants, moving towards residential was a way to make sure the property stayed relevant.

“Some place the community could be proud of,” Ramsay said. “Multi-family works better than retail and better than office.”

Not unlike what developers did when creating Peninsula Town Center out of the former Coliseum Mall in Hampton, Ramsay said he and his team are looking at including event lawns, exterior spaces and utilizing existing alleyways for various retail uses to make sure people don’t feel like they’re just living at the site of an old mall.

He doesn’t think he’ll have problem finding tenants.

“Millennials and the younger crowd actually love living in the areas where they have very convenient access to restaurant and entertainment, to Target, to convenience, to buying their stuff,” Smith said. “Just accelerating some of the transitions retail is going through right now.”