Retail-to-Industrial Conversions Accelerate, Driven by E-Commerce
Nearly 14 million square feet of retail space has converted to industrial space since 2017–a trend likely to increase as e-commerce expands and industrial rents increase, said CBRE, Los Angeles.
The CBRE MarketFlash report, Retail-to-Industrial Property Conversions Accelerate, found 59 retail-to-industrial conversion projects completed, proposed or underway since 2017, a marked increase from the previous survey in January 2019, which counted 24.
More than two-thirds of those 59 projects are conversions or adaptive reuse, CBRE said. The remaining 19 projects are properties demolished for new construction.
“As online retail evolves and expands, many retailers and developers will find opportunities to convert under-performing stores into final-mile distribution sites to support e-commerce operations,” said John Morris, Americas Industrial & Logistics and Retail Leader with CBRE. “With rising industrial rents and changing consumer patterns, we should see this activity continue to grow, as more retail sites will be economically viable for these types of conversions.”
Underperforming retail sites are often located within population centers and connected to utilities and have large parking lots, the report said. Many freestanding big-box stores have existing dock doors and clear heights compatible with industrial use. Those without compatible design formats are typically demolished and replaced with modern warehouse facilities.
COVID-19 pandemic after-effects will likely accelerate the conversion trend. “Stay-at-home orders across the U.S. have introduced an entirely new customer base to e-commerce,” the report said. April and May online sales were up 7 percent compared to the 2019 holiday season and $52 billion above normal online sales in April and May. “The disruption to the retail sector and the growth of e-commerce will continue to increase the viability and payback of retail-to-industrial property conversions,” CBRE said.
Top conversion markets include Milwaukee, Cleveland, Chicago, Omaha and Dallas/Ft. Worth. These five cities account for one-third of retail-to-industrial property conversions nationally. CBRE noted the number of “dead malls” in the Midwest partially explains why the region seems over-represented. “Looking ahead, the changing tide of retail, the growth of online shopping and the steadily increasing demand for industrial space could extend this development strategy to higher growth markets in the Southeast and West regions,” the report said.
