As retail struggles throughout the pandemic, there are many arguments for converting slumping shopping centers into new uses.
Big box retail hasn’t suffered as much as mom-and-pop stores, gyms and restaurants. Still, investors and developers are looking to warehouse conversions as a way to take advantage of the higher returns and strong rental growth of the logistics sector, according to Stuart Taylor, senior director of retail investments for JLL in a new post.
The case for these conversions is straightforward: In the US, there is an oversupply of retail buildings and many defunct malls have already been converted to industrial uses.
For example, the Randall Park and Euclid Square Malls in Ohio have been converted into fulfillment facilities by Seefried Industrial Properties, resulting in a 20% increase in lettable area across the assets, according to JLL.
Pressure on the logistics sector to keep pace with the e-commerce boom is another driver behind these conversions.
“The conversion of big box stores into warehouses is a logical next step,” Taylor writes.
Most of these stores are located near population centers and close to large logistics hubs, which makes them good spots for both rapid delivery and returns, according to JLL.
Low site coverage is also favorable for big-box-to-retail conversions. Buildings often take up half the site area, while customer parking occupies the rest of the space.
Since the physical structure of large-format malls is similar to industrial units, these conversions allow the landlord to extend the sites with income-generating industrial buildings without adjusting existing buildings, according to Taylor.
“Prime large-format retail sites will continue to be in high demand from retailers, but as long as logistics trends continue on their current trajectory, there will be pressure to convert sites where there is underutilized land, a secondary tenant mix or where the site is competing with a similar asset in the same area,” Taylor says.