Report: Tenant Demand Grows for Reconfigured Former Box Store Space
As online shopping has become ubiquitous over the past several years, with e-commerce giants like Amazon offering seemingly every product under the sun and with free delivery for subscribers, retail tenants that have set up shop in centers and malls have suffered from sales slumps, more or less severe depending on geographical region and local economies. But especially at malls, major buildings still stand even after a retail giant goes out of business or isn’t viable in a location and moves. With the death of many big box stores has come a struggle by mall owners to fill large spaces. Nontraditional tenants, like megachurches or performing arts tenants, have been one way to repurpose anchor store spaces. But simply restructuring a huge, single-tenant space to accommodate several smaller tenants is taking off.
Many more mid-sized national tenants than nontraditional businesses want to lease brick-and-mortar space. And having a mix of tenants in spaces that have been redesigned to fit them can create synergy. A Banning, Calif., anchor store space that housed a Kmart has been made over to accommodate several well-known retailers that draw customers but don’t need thousands of square feet for their businesses.
The closure of anchor stores can be a big hit to the local economy if a county largely depends on sales tax revenue for its income. So making a space home to tenants that have physical sales in the county, as opposed to online sales, is crucial in some places across the country. By making an anchor space into four or five stores, major contributions can still be made to boost sales tax. Reusing existing buildings has been the answer mall landlords have been looking for; tenants can angle for a good deal if they know they’re an ideal tenant for reconfigured former box stores.
Reconfigured space like that can have lower base rent than long-standing spaces. Landlords that have been open to altering large box store space and splitting spaces have been successful in attracting new tenants nationally, not just in the case of the Banning retail property. Commercial real estate firm CBRE said in a third-quarter report for that market that mid-size tenants and some off-beat uses like a farmers markets were actively seeking that type of space.
A CBRE spokesperson noted in the report that while there is continued shrinkage of the footprint size of retailers as they learn how to deal with e-commerce and increased efficiency in their industry, it doesn’t mean that retailers across the board are shrinking.