Retail Conversions Anticipated to Ship New Logistics Provide

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Retail Conversions Expected to Deliver New Logistics Supply

Dying malls have a viable use case: transforming them into logistics facilities, according to a new report from Prologis. This is not exactly news: such projects have long been hyped in response to the difficult C and D shopping malls. The problem was, There have been few successful projects.

That can change. The Wall Street Journal last month reported The Simon Property Group has investigated with Amazon the possibility of converting some of its anchor department stores into Amazon distribution centers.

In short, the tide on these projects could finally turn, according to the Prologis report.

"COVID-19 has brought more than five years of development to the retail landscape in less than five months," said the report, which assessed the opportunities and barriers to moving from retail to logistics. At the same time, the report continues: “The rising demand for high quality and filling logistics real estate is increasing due to the accelerated adoption of e-commerce and just-in-case inventory. Overall, these changes have led retail owners to look into the possibility of converting retail space for distribution purposes. "

In general, the REIT said, “Class A and B shopping malls remain viable as retail properties.” However, the report continued, “Anchor redevelopment [in such properties] has started to become feasible. We estimate that there will be between 60 and 110 shopping centers with anchor refurbishment among the 400 or so shopping centers in Prologis stores. "

Prologis estimates 10 to 20% of Class C and D malls, which span approximately 11 million square feet, will need full renovation.

When it comes to freestanding retail, there are fewer options to convert, but there are still some. According to Prologis, sites larger than 6 to 8 hectares are the only candidates. Given that retail stores are the largest category of retail, the company forecast a move from retail to logistics of approximately 45 million square feet over the next 10 years.

Conversion is not easy, the report warned. One of the considerations is the profitability of logistics tenants compared to higher-quality tenants; the politics of downzoning; the physical layout of a site and legal issues.

"Even if strategy and economics are aligned, conversions won't happen quickly," warned Prologis. "Existing agreements will be an obstacle in the short term."

Still, the REIT predicted, "The incremental new supply of logistics from retail remodeling will be five to 10 million square feet per year for the next ten years."

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