John Egan wrote an interesting article for the National Real Estate Investor website, Why Mall Landlords Are Turning Empty Anchors into Fulfillment Centers. In the article he notes how savvy warehouse investors are more often beginning to look into the benefits of retro fitting old retail and mall properties into modern warehouses and distribution centers. John writes:
But in a move that would have been unimaginable in the heyday of traditional retail in general and Sears in particular, mall owner Washington Prime Group Inc. already has lined up a new tenant—WVU Medicine, the largest health care system in West Virginia.
Of course, WVU Medicine won’t be selling appliances, apparel or housewares at this space. And it won’t be treating patients there. Rather, the space will be converted into a logistics, distribution and fulfillment center for WVU Medicine for items like personal protective equipment (PPE) and medical equipment.
John goes on to show how groups like Simon are now partnering with logistics companies to back fill some space. The Gloucester Premium outlets are mentioned among the locations for these new logistics hubs. Another interesting point mentioned in the article is a CBRE report showing the growing number of retail to warehouse conversions happening throughout the country.
A report released July 23 by CBRE Research shows that 13.8 million sq. ft. of retail space—roughly equivalent to 35 small-format regional malls—has been converted to 15.5 million sq. ft. of industrial space across the country since 2017.
CBRE Research’s recent survey uncovered 59 retail-to-industrial conversion projects that have been completed, have been proposed or are underway since 2017. By comparison, its January 2019 survey tallied 24 such projects.
While this type of conversion may not make sense for all land lords, many especially throughout the Northeast and Mid-Atlantic, may find converting older retail into logistics and distribution centers is exactly what is needed to continue operating profitably.
We may also see more retailers lowering their retail footprint but expanding with warehouse space. If as expected more manufacturers look to offer direct to consumer models, we may see smaller distribution centers which would cater to these types of transformations.