Big-Box Retail Buildings Find New Life as Mixed-Use Space
As e-commerce continues to grow, big-box stores across the country are shuttering their doors. Toys R Us closed in the summer of 2018, and Bed, Bath & Beyond recently announced the closing of 40 stores. Saks Fifth Avenue also closed several of its locations, including a 30,000-square-foot location in the Mall at Short Hills in Milburn, N.J.
A well-known retailer leaving a neighborhood or an anchor tenant exiting a mall doesn't always have to spell devastation for the remaining tenants or the community. Many real estate investors may consider dividing the vacant buildings into four or five smaller stores, gyms, entertainment centers, and even housing or healthcare facilities. The possibilities are endless.
“Multi-use developments are definitely a national trend across America, not a regional trend or on one coast or another," says Laura Pomerantz, vice chairman, head of strategic accounts at Cushman & Wakefield and principal and founding partner of Laura Pomerantz Real Estate, LLC.
Wherever you may be investing, consider getting creative with former big-box stores or the land on which they are located to create a thriving community of services that will yield profits for years to come.
Big Boxes Are Primed to be Creative Spaces
Open floor plans and high ceilings make big-box spaces exceptionally flexible and primed for subdivision. In Round Rock, Texas, a former Walmart was subdivided first into the RMP Indoor Raceway go-cart track and then a fitness center, smoothie shop, hair salon, and other retail stores—almost like an indoor strip mall.
The characteristics that define big box stores, such as ample square footage, plenty of parking, linear orientation of lighting and structural bays, and lack of natural lighting in order to create the desired mood with artificial lighting, are also conducive to successful retail and restaurant spaces. In addition, big-box stores are intentionally built on or near major highways, so they have high traffic from consumers.
Many big-box stores also have highly prohibitive non-compete statements in their leases or deeds, keeping a competitive retailer from moving into the space even after the original company has vacated. This forces investors or landlords to find creative ways to repurpose the space.
“There are always new concepts developing in terms of street retail," explains Pomerantz. “As your leases roll, you want to have the best, most productive retailers coming in, which means landlords have to take a look at adaptive re-use for their real estate."
Shoppers Crave More Intimate Experiences
Saks Fifth Avenue in The Mall at Short Hills closed to move to a new home—the mega-mall in East Rutherford, N.J., with a prime location near the Meadowlands Arena. Coming to its former 30,000-square-foot space is Industrious, the first co-working office space in New Jersey, along with Indigo, a Canadian bookstore chain.
“The developers are looking for conceptually new retailers, but retailers have also started to get smaller," says Pomerantz, noting that previously, a Barnes & Noble retailer may have taken up 60,000 square feet in a mall or shopping center, while the Indigo bookstores are only 20,000 square feet.
“Customers are looking for more intimacy and authenticity," she continues. “You can create a better, more intimate experience in a smaller space."
Mixed-Use Properties Create Communities of Services
Driven by millennials' desire for convenience and walkable communities, many big-box locations are being transformed into multi-use facilities that merge residential apartments, office space, retail, restaurants, and entertainment venues, such as movie theaters and bowling alleys.
The new $3 billion Legacy West in Plano, Texas, is a luxury shopping center that combines boutique, high-end, and mid-range retail establishments with luxury dining, quick-serve restaurants, and the 303-room Renaissance Dallas at Plano Legacy West Hotel. In January, developers altered plans of building a second hotel to instead incorporate more retail, office, and residential space.
Although not a former big box location, Legacy West was built on land owned by JCPenney, purchased to move the company's headquarters from New York City to the Dallas suburb—a cost-cutting measure as department stores like Sears and, to a lesser degree, Kohl's and JCPenney, continue to struggle.
Prompted by the closing of Sears, the Westfield Montgomery Mall in Bethesda, Md., is repurposing to include hotel space, apartments, restaurants, and office space. Pomerantz categorizes the trend toward mixed-use facilities in urban and suburban centers as a “change of life "
She explains that while past generations bought houses in the suburbs and built equity, millennials seek the energy and convenience of cities, even if they settle in the suburbs.“They're developing communities of services with residential, retail, integrated healthcare, restaurants, supermarkets—all of it."
For investors, the concept is a win-win, as they no longer have to choose between commercial and residential real estate. “The more diversified you are, the less risk you have," she explains. “As a developer, the risk is spread if you have a multi-use property."
