Old retail space finds industrial use in some markets

The firm points to 24 retail-to-industrial projects since 2016, in which nearly 8 million square feet of retail space was turned into almost 11 million square feet of industrial space — either by converting the existing retail structure or else replacing it with new industrial construction.

These projects are located  predominantly in areas with a median household income below the national average and in markets with an industrial vacancy rate below 5 percent — indicators that boost the value of industrial usage in such locations, which may no longer support typical retail concepts.

In Dallas–Fort Worth, a 351,000 square-foot retail center was reworked as 1.2 million square feet of industrial space. The surrounding market had a 6 percent vacancy rate, and the median household income within one mile of the project was $36,875. In a section of Tampa, Fla., with an industrial market vacancy rate of 4.5 percent and a median household income within one mile of $51,930 per year, developers turned a 126,000-square-foot retail center into an industrial complex. 

“Freestanding big-box stores closer to population centers than warehouse districts are the primary candidates for conversions,” writes Lisa Denight, a CBRE senior research analyst, in a report. “The retail structures typically offer dock doors, ample parking and clear heights compatible with industrial usage.”

Major retailers expanding their omni-channel platforms are transforming some underperforming retail properties to e-commerce-driven logistics space, says David Egan, CBRE’s head of logistics research. Larger-scale vacant retail properties, such as regional malls and community centers, are more often purchased by industrial developers and demolished for new industrial construction that meets the requirements of prospective users, he says. 

These retail-to-industrial conversions can face challenges on an individual-site basis — from competing uses, or else as a consequence of zoning restrictions or of rising development costs. But Egan asserts that the trend will continue nevertheless, as the balance between brick-and-mortar retail and e-commerce shifts a bit more toward logistics.