Warehouses Answer Shifting Market Demands
February 14, 2019
A market hungry for last-mile distribution centers is gobbling up an increasing number of defunct big boxes and other retail spaces and converting them to warehouses, according to a CBRE report. “Last-mile” refers to the final leg of the journey an item takes from order fulfillment to delivery.
Since 2016, 7.9 million square feet of retail space have been converted into 10.9 million square feet of industrial space, spread over 24 projects located primarily in the Midwest and South.
The conversions have taken two forms. Major retailers are flipping underperforming properties in population centers into logistics space for their e-commerce divisions, and dead malls are being torn down by developers to build new warehouse space to spec, according to the report.
Until recently, such conversions would have been highly unlikely due to traditionally higher retail lease rates. But in markets with an industrial vacancy below 5 percent, centrally located vacant big boxes with loading docks, a great deal of parking, and high ceilings are proving attractive alternatives.
While owners looking to convert underperforming retail space into warehouses will face challenges, such as getting rezoning permission from a municipality, experts expect such conversions to increase as demand increases from the e-commerce sector.
Naomi Millán, is senior editor of Building Operating Management.