Maine cities begin to transform decaying retail space into housing

Augusta’s Kmart plaza, a prime yet fading piece of property in the heart of Maine’s capital city, has sat underutilized and largely vacant for years.

Even those who may pass it daily may not know that it has a commanding view of the State House, which lies only a short walk away. Like in many cities around Maine and around the nation, officials are planning to revitalize the former shopping area as a mixed-use development with 60 market-rate apartments, retail and office space and a hotel.

“We’re looking at this as a $48.5 million project, which certainly recognizes the importance, the prominence and the potential status of this property,” Keith Luke, Augusta’s economic development director, said. “It has been tremendously underutilized in every sense, and undervalued.”

It’s one of the more prominent early Maine examples of redevelopment in shopping areas, a trend that has taken off in recent years amid changing consumer habits and a deepening housing crisis. If a contract zone for the project is approved, Augusta will join municipalities including Kittery and Brunswick in bringing residents into underused retail space.

“The bottom line is that there’s such a shortage of housing in the state,” Joseph Italiaander, a real estate broker with The Boulos Company focused on the commercial market, said. “Getting creative with where you develop housing has kind of led to retail centers as options.”

In Kittery, a lack of workforce housing for shipyard workers spurred a redevelopment project in its outlet malls. In Bangor, where rentals are just as unaffordable as they are in Portland because of lower incomes and inventory, the city has been trying to get in touch with the owners of its fading mall for years to inquire about turning vacant storefronts into apartments.

There are few better sites for housing than strip malls, which are often close to the town centers, have existing utility service and lie on public transportation lines. Unless there’s a historic element to these stores, they are most often razed and totally redeveloped rather than repurposed because of their age and because it’s more cost-effective, Luke said.

“These are the areas that we want to promote exactly this type of development in, to make the highest and best use of property that is served by public utilities,” Luke said.

The Augusta project, proposed by developer George Campbell, who told the Kennebec Journal he has an option to purchase the property, would revitalize a nearly 8-acre plaza that Luke said has been underutilized for 15 years. The Kmart closed  at the end of 2019, and its space has more recently hosted a seasonal Spirit Halloween store.

These kinds of redevelopment efforts are part of a larger “live, work, play” trend in community development that stands in stark contrast to the suburban sprawl trend of the late 20th century, Italiaander said. People today want rental housing with easy access to neighborhood services, restaurants and amenities.

It’s likely that Maine will see more of these mall redevelopment projects in major cities outside the greater Portland area, including Augusta, Waterville, Lewiston, Auburn and Bangor, Luke said. That’s in large part because there is a lack of available properties in the Portland area, and those that are available are expensive to acquire and redevelop.

Italiaander added that these projects are often easier in suburbs, where larger parcels of commercial land are being underused. Despite retail shifting more online in recent years, Italiaander said the sector is still holding up well, which is why these developments are mixed-use and include some retail.

“It’s a sign of strength,” he said. “But housing tends to be a greater need right now in some of these areas.”