Vacant Big Box Stores, Malls Eyed as Last-Mile Distribution Centers

Industrial space, particularly for last-mile distribution, is both sparse and expensive.

This, along with rising rents, is encouraging creativity among real estate developers, prompting a few—and the number is growing—to convert big-box stores and empty malls into such facilities, according to a report by NAIOP. 

Full or Partial Adaptive Use

Full or partial adaptive reuse of retail structures are being used for these conversions through ground-up industrial construction after obsolete retail structures are torn down. Dozens of retail-to-industrial conversions have been completed, “and more may be coming soon,” according to CBRE data that the report cited. 

These conversions are conceptually appealing because vacant big box stores and malls often sit on large parcels of land near transportation networks and residential neighborhoods that are suitable for last-mile distribution.

They also have proved to be more cost-effective than new development. However, executing these conversions is not “easy,” the report said. 

Myriad obstacles, some of which are economic, legal and political, face those choosing to go that route.

While the infrastructure is in place, it might not fit the specs necessary to accommodate the warehousing and distribution. Developers are met with challenging ceiling heights, floor load capacities and loading bay locations that are sub-optimal.

‘Anything is Possible’

“Anything is possible with such a shortage of space available for e-commerce distribution,” Garrick Brown, director of advisory services and business development at Lockehouse Retail Group, said in the report. “But [converting retail space into industrial space] is often better in theory than it is in practice.”

Legal difficulties could arise such as “co-tenancy and exclusivity clauses in leases, reciprocal easement agreements, and loan covenants that respectively allow tenants, adjacent property owners and lenders to exert control over how space in vacant big box stores and malls is used even though they do not own or occupy the space,” according to the report.

There also is the risk of political opposition as elected officials could be reluctant to support the rezoning of high-profile retail properties for industrial uses due to residual effects such as traffic and noise.