Retail Reenvisioned: Shift in Sector Uses

By Jenae Valentine, Economic Development Coordinator/Real Estate Associate

In 2017, the retail sector proved to be the most volatile of all the major real estate sectors. Retail store closings and retail bankruptcy headlines dominated the real estate industry. According to major commercial real estate investment and research firm Cushman and Wakefield, there were approximately 9,000 store closings from major retailers such as Macy’s, Sears, and J.C. Penny and 50 retail chains filed for bankruptcy. Retail analyst predicts another 12,000 store closings and another 25 retailers to file for bankruptcy in 2018.

Where does this leave the retail industry? What will happen to the millions of vacant square feet with large mall footprints?

We have seen a decline in malls across the country over the past decade, ultimately creating a shift in what was once considered typical mall uses such as retail stores, movie theatres, and restaurants. As more management companies focused on improving vacancy rates and their bottom lines, the character of malls across the country started to suffer. Shopping malls across the country once served as principal gathering places for teens, elders, and created a holiday experience for children with Santa that was unmatched. Many people have fond memories of a mall that has since closed in their community or nearby city. As malls started to transition more management companies allowed churches, charter/secondary schools, and gyms to lease space. While e-commerce sales have impacted brick and mortar stores, large shopping malls continue to lose their appeal.

As malls continue to transform their use, one of the most significant trends in the retail sector has been the conversion of shopping malls to industrial parks. Typically shopping malls are situated on extensive acreage near significant transportation such as the turnpike and interstate. The private sector is seeing an opportunity to serve the technology industry through building distribution and data centers. The public sector is seeing this shift as an opportunity to boost the economy through job growth. In Cleveland Ohio, Amazon is building a new fulfillment center that will bring over 2,000 jobs to the area. Amazon broke ground in 2017 on the old Randall Park Mall site, a 67-acre mall that was once the largest mall in the world. Randall Park Mall officially closed its doors in 2009, and local officials are excited for the long-standing vacant site to become a new opportunity for the greater Cleveland area.

This example of a shift in sector use is one of many occurring across the country. The change in retail to industrial use is becoming more prevalent; however, multi-use developments across all real estate sectors is very common. We are seeing more industrial parks and spaces become the home of micro-breweries and distilleries. Another trend in the market is the shift the design of parking garages. With autonomous cars entering the market and more people opting to take transit to work developers are challenging the number of parking spaces needed for new projects. While the private sector is still developing parking garages with an ample number of spaces, the design of the garage is changing. Labeled “carchitecture” many parking garages today have a design element and offer more than just parking. Modern garages provide creative screening, ground floor retail, and fantastic rooftop views that can be transformed into event space for a networker or even a wedding. According to the National Multifamily Housing Council, there is an apartment shortage in the United States. To meet the existing demand 300,000-400,000 units need to be delivered every year. As developers continue to create urban environments in suburban areas, vacant malls could offer an additional opportunity for multifamily mixed-use projects. These mixed-use districts generate a sense of place and vibrancy that large malls were initially known for providing to communities.

The real estate industry is forever changing, the key to a good development project is delivering a product that can adapt and ultimately shift uses over time.