ITRA Global News

Former Retail Big Box Stores in Demand by Variety of Space Users

September 30, 2020

How many times have we heard “retail is dead”?  Well, we are hearing it again and with particularly good reason.  The Coronavirus and governmental lockdowns and restrictions have caused profound negative impacts to brick and mortar retail properties worldwide, but there are several reasons why the big box and anchor mall spaces are not quite dead yet.    

Big box retail and anchor mall spaces have had ups and downs over the past 30 years, but rumors of their demise were not accurate then and they may not be now.  Historically, bad retailers would go bankrupt in recessions and new retail concepts would take their place.  Sometimes entertainment concepts would take over these types of spaces.  At the same time, Internet shopping continued to grow and chip away at traditional retail stores’ sales.  With COVID-19 causing major disruptions, online shopping has grown dramatically and will likely continue into the future.  But it is not just the Internet - discount chains such as Walmart and Target negatively impacted the success of big regional malls by killing off the traditional department store tenants like Montgomery Wards and Sears.  Some malls have died and remain dead today, usually in economically challenged locations. 

Before we bring a wrecking ball and bury all of them, we should consider that many big box stores and regional malls were developed on “prime” land.  For the malls that remain open today, in many cases nothing has changed because these properties are in strong demographic areas with great freeway access, visibility, and abundant parking.  These same factors apply to many box retail stores developed over the past 25 years.  Property features such as these are attractive to all kinds of different space occupiers. A list of some of those is below:

  • Health Care Providers – clinics, medical office, etc.
  • Residential developers / apartments in the suburbs
  • 3PL / Logistics – last mile delivery coverage
  • Educational facilities
  • Climate controlled self-storage
  • Government
  • Fitness facilities / clubs
  • Office space / coworking

The pandemic will slow down office leasing and fitness club development in the next several years, but health care is an expanding business that needs space that is well located and accessible.  Logistics users are also in the hunt and may consider exceptionally large vacant blocks of space for their last mile delivery needs.  Educational uses often require extra parking along with visibility and access.  Residential developers are building in the suburbs now and regional malls have plenty of land or could demolish and redevelop a portion of the mall. Let us also not forget that real estate development can go vertical.  While most big box stores and regional malls are three stories or fewer, new apartment projects can be much higher.  These sites are ideal for adding medium and high-density housing with retail amenities a short stroll away.  In the future, post-pandemic, taller office buildings and hotels could also be added into the mixed-use concept.    

The less favorably located spaces will eventually become self-storage, back office space, thrift stores, and other types of lower cost driven uses. Let’s also not forget that government will often step in and purchase these types of large, struggling malls or box stores because they want control of the real estate and are willing to wait for the right concept to rise from the ashes.  In some cases, affordable housing may be added into the mixed-use concept.

Almost all big box stores and regional malls are in the suburbs.  While downtowns and adjacent urban areas have been hot, hot, hot zones for the past decade, the recent civil unrest, rioting, and looting will have an impact on location decisions by real estate users and apartment renters.  Regional malls and big box centers are in safe and secure suburbs, which will make them attractive options to consider given the above adversities.   

Before any of these types of alternative users sign a lease or complete a purchase, it is critical to check zoning to ensure there are no restrictions on the use.  In many cases, a neighborhood and city approval process will be needed to allow alternative uses.  Many shopping centers and malls also have restrictive covenants, so approval by the existing retail tenants may also be necessary.  An experienced real estate advisor will outline these types of risks in addition to identifying and comparing all potential opportunities in the market.

The pandemic has had the effect of accelerating the demise of many retailers and is forcing retail landlords and cities to quickly reconsider the conversion of these types of spaces to alternative uses and allow some zoning flexibility.  There will be demand for the best centers and spaces because the underlying real estate is incredibly good and adaptable to a variety of needs. If your company has a space need and back-filling regional mall anchor space or big box space is of interest to your company, contact your ITRA Global representative to discuss your space requirements in further detail.    

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