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Prologis Report and Amazon Plans Cast Doubts on Retail Conversion Trend

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Close to the highway, but close to housing, too. (iStock/Thomas De Wever)
  • Prologis says conversion of old retail space to logistics/warehousing use “is likely to be small.”
  • Amazon, meanwhile, is said to be taking a very different approach to meet its space needs.

Will that old Sears store at your local mall be converted for use as a distribution center? Or, for that matter, will the entire mall be repurposed to handle logistics and warehousing functions?

Potential retail conversions like that have generated a lot of buzz in recent months, most notably when it was revealed that Amazon was window shopping spaces that once belonged to JCPenney and other troubled retailers.

A new study from logistics real estate company Prologis, however, pours a little cold water on this potential trend. “Viewed through the lens of traditional logistics metrics, the retail-to-logistics trend is likely to be small,” Prologis concluded.

The company explained this is likely to be the case because “retail conversions are complex” and face serious economic, political, physical and legal headwinds. E-commerce is expected to reach $340 billion globally in 2020, certainly driving the need for new distribution and related facilities, but Prologis seems to be convinced that the next use for many vacated retail spaces will be … more retail.

“While COVID-19 has hit the retail space hard, the next- generation use of retail vacancies is most likely to be a new retailer,” Prologis wrote. “This is particularly true for mid- and smaller-scale retail sites, which have a higher proportion of basic daily need customers. By contrast, challenges for retailers within the mall space are greater, but with important differences between high- and lower-quality malls.” In the race to reuse retail space, logistics will have to compete against other uses of vacated malls that could be more lucrative to property owners or more palatable to community members. Those uses include “conversions to other retail formats, single and multifamily residential, office uses, … hotels, universities and community and municipal uses.”

NIMBYism could be another obstacle, with communities adjacent to malls potentially unlikely to welcome either increased truck traffic or a hit to local tax revenue. “Challenges are particularly high for small- and mid-sized formats (e.g., community and power centers <500,000 square feet), where it’s common for retail sites to be immediately adjacent to residential,” Prologis speculated.

Overall, Prologis projected that retail-to-logistics conversions will amount to only about 5-10 million square feet per year over the next decade. That’s out of a potential retail brick-and-mortar infrastructure amounting to billions of square feet.

If Prologis is correct, then perhaps Amazon showed what the future is more likely to look like when it was revealed today that the e-commerce giant is looking to open 1,000 small delivery hubs in cities and suburbs across the United States. Bloomberg, which broke the news, acknowledged the retail-to-logistics question in its article.

“The company’s appetite for real estate is so strong that many analysts have speculated that Amazon would convert vacant department stores into distribution centers,” Bloomberg wrote. “In fact, that option is only a last resort, said the people privy to the company’s plans.”

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