8M SF Of Big-Box Stores Are Being Turned Into Distribution Centers
Distribution centers have been long discussed as a potential second life for vacant retail properties; now we have a sense of how that has progressed.
Since 2016, industrial redevelopments have commenced at 24 former shopping centers or big-box stores in the U.S., according to a new report by CBRE. That comes to 7.9M SF of retail turning into 10.8M SF of industrial space across the country, and the trend is likely to accelerate.
In 2016, one such conversion was completed. In 2017, five conversions were completed, followed by three last year. Five more are under construction with projected completion dates in 2019, and eight more are in the planning phase.
Stand-alone big-box stores, such as former Walmart or Toys R Us locations, are the most popular target for redevelopment because they can often be converted into distribution centers without needing to be demolished. Even then, the transition from retail to industrial is much longer and more difficult than one may assume — especially if active retail remains nearby.
“If you have a center that just lost its major tenant yesterday, that may be a massive problem for the center, but it’s going to take years for anyone to pull the trigger on a warehouse conversion,” CBRE Global Head of Industrial and Logistics Research David Egan told Bisnow.
The combination of factors that slow down retail-to-warehouse conversions means that what is getting built now is largely made up of stores and malls that closed long ago.
“I don’t know exactly what the life cycle of these facilities had been, but it’s probably true that it was the first wave [of closures] that has become industrial, because it’s a long process to go from declining retail to changing demographics, and then the zoning approvals," Egan said. "It is just going to take time.”
The area of the country with the most conversions has been the Upper Midwest, including states like Ohio and Wisconsin that "had been over-retailed due to demographic shifts across the country," CBRE Senior Research Analyst Lisa DeNight said.
That the beginning of the trend took so long to arrive means the number of potential locations will sustain it for quite a long time.
“Unfortunately, I think there will be a lot more of these,” Egan said.
Whether through redevelopment or demolition and replacement, vacated retail boxes will continue to be a target for last-mile distribution centers. They often represent parcels of land closer to population clusters than where purely industrial development is allowed to go, and with enough parking space to support frequent, smaller deliveries. And to their benefit, distribution centers don't normally require the same level of population density as retail does now.
“The middle of Montana doesn’t have any people, but Bozeman, Montana [population: 46,956], has plenty of people, and they expect to get products shipped to them as quickly as customers in New York,” Egan said.
