30 January, 2019

Shifting consumer shopping preferences for e-commerce and in-store omnichannel platforms have caused developers and users to convert some vacant retail properties to industrial/logistics space. There are 24 retail-to-industrial projects that have commenced since 2016, turning 7.9 million sq. ft. of retail space into 10.9 million sq. ft. of new industrial space either by converting the existing retail structure or replacing it with new industrial construction on-site.

These projects are predominantly located in areas with a median household income below the national average and in markets with an industrial vacancy rate below 5%—indicators that elevate the value of industrial usage in locations that no longer support typical retail concepts. Freestanding big-box stores closer to population centers than warehouse districts are the primary candidates for conversions; the retail structures typically offer dock doors, ample parking and clear heights compatible with industrial usage.

Major retailers expanding their omnichannel platforms are transforming underperforming retail properties to e-commerce-driven logistics space. Larger-scale vacant retail properties, such as regional malls and community centers, are more often purchased by industrial developers and then demolished for new industrial construction to meet the physical requirements of prospective space users. 

The retail-to-industrial conversions can face challenges on an individual-site basis from competing uses, zoning restrictions and increasing land/construction costs. But this trend will continue to grow as the balance between brick-and-mortar retail and e-commerce shifts to necessitate more logistics space and less physical retail space.

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