Research shows growing demand for retail real estate transformation

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The conditions are ripe for the transformation of retail real estate into industrial real estate, especially as troubled malls seek ways to unleash new value, according to a report by commercial real estate firm Newmark released earlier this month. Report, Retail to Industrial Transformation: Could Outdated Shopping Center Anchors Rebirth As Retail Changes As Fulfillment Centers?, explores the rise of e-commerce and the accompanying demand for warehouse and fulfillment center space with the decline of traditional shopping malls across the country. Researchers point to a changing role for traditional retail space in shopping malls that has accelerated during the pandemic, highlighting both the opportunities and challenges faced by retailers and property owners. “The problems in the US retail market were exacerbated by the 2020 pandemic, which further eased fundamentals across the country, prompting mall owners to look more aggressively at alternative uses for their assets,” a Newmark spokesman said. “The harsh industrial market conditions are accelerating these discussions, especially as buy-on-the-line, take-in-store (BOPIS) programs are increasing the need for retailers for warehouse space.” Researchers have identified three main factors that determine the potential for retail-to-industrial transformation:

  • Regional shopping malls have evolved over the past 50 years, they said, as once famous destinations face increasing competition for shoppers and discretionary spending. Consumer demand for more outdoor retail space has resulted in fewer new shopping centers being built, and many retailers are leaving closed shopping centers in favor of these new centers.
  • Department stores have been an anchor wherever they are, whether it’s a downtown block or a regional shopping center in the suburbs. According to them, the reduction in the number of these stores creates new problems when the premises are vacated and the owners are looking for new tenants. The problems in the U.S. retail market have been exacerbated by the 2020 pandemic.
  • Converting vacant anchor spaces in shopping malls into distribution or fulfillment centers serving e-commerce offers significant growth potential as a redevelopment measure. In some cases, a complete property conversion may be the most efficient and effective use of the property, although the conversion process can be costly and complex.
  • The researchers acknowledge that the conversion of shopping malls to fulfillment centers has been limited to date, but they point to some recent regional projects that may pay off. Examples include:

  • Macy’s said last fall that two stores it closed earlier this year will be redeveloped as fulfillment centers. The retailer also highlighted recent efforts to promote BOPIS and curbside delivery, including transforming stores in Dover, Delaware and the Denver suburbs into omnichannel hubs.
  • Walmart is testing converting parts of its stores to fulfillment centers, planning to use the front half of some buildings for typical shopping, while the rear half will be converted to warehouses and fulfillment centers.
  • In late 2020, the Worcester, Mass. Planning Board approved a proposed redevelopment of Greendale Mall into a last mile distribution and fulfillment center for Amazon. This will be the first such transformation in New England, according to the report, which also says the mall owner planned to convert the space into a mixed-use development but changed course due to the accelerated growth of e-commerce during the pandemic.
  • “Not every legacy mall will act as a fulfillment center, but repurposing these sites – and sometimes existing buildings – to maximize and best use them can be a win-win for asset owners and the local community as retail grows,” the researchers write. … …

    Go to Newmark.com for more information on the report and other industrial real estate trends.

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