Big Box Retail Transforms into Industrial Warehouses

Industrial investors are looking to big box retail for warehouse supply. According to a new report from CBRE, nearly 14 million square feet of big box retail space in the country has been converted to industrial space. This trend is supporting growing demand for industrial space as ecommerce shopping increases.

“Reduced demand for malls and big box retail combined with a shift in consumer buying patterns have greatly increased demand for industrial and logistic space.  As a result, retail investors are evaluating the highest and best uses for their properties, which lines up with the escalation of industrial demand,” Matt Siegel, retail leader for the Pacific Southwest region at CBRE, tells GlobeSt.com. Kurt Strasmann, industrial leader for the Pacific Southwest at CBRE, agreed, adding, “The result is that many investors are putting money into potentially repositioning different types of retail assets that could align with industrial uses.”

Big box stores are the best candidates for retail-to-industrial conversion projects. “The best candidates for potential conversions are underperforming big box retail and lagging malls with proximity to neighborhoods to serve last-mile delivery demand,” says Siegel.

These conversions aren’t easy. Retail—even a big box—still needs substantial changes to work for an industrial warehouse. “The perception of trucking traffic is problematic, especially at properties that are close to population centers. However, proponents of repurposing point to less overall traffic.  Zoning challenges will vary market to market on these conversions,” says Siegel. Strasmann adds, “Some of the major hurdles include zoning and trucking issues given that many retail projects are adjacent to residential areas; plus, retail can provide tax incentives to cities.”

So far, zoning has been one of the biggest hurdles in converting retail into industrial, but that is changing. “Local governments will view rezoning differently.  There are local governments that consider repositioning as a job growth opportunity.  With online sales increasing, and buyer behavior trends continuing to embrace online purchasing, local governments can capitalize,” says Siegel.

Lack of retail demand has forces local governments to look for alternative uses for retail. “Initially, it has been exceptionally difficult but as time passes and a lack of retail reuse demand for growing vacancies persists, I suspect restrictions will be reduced to allow the opportunity for industrial-related repositions,” says Strasmann.