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Adaptive reuse: A growing trend offering new life to aging retail propertiesJune 18, 2021
The retail sector is contending with a high degree of disruption and structural change, which began prior to the pandemic but whose stress quickly exacerbated existing problems. Prior to the pandemic, retailers were already facing fiscal challenges. Increasing debt burdens, moderating revenue growth, and compressing margins, in addition to the death blow of failing to find fresh new ways of connecting with consumers. According to Coresight Research, 10,000 store closures are expected to be announced by retailers in 2021, down 22% from total store closings in 2020, and many of those closures will be in America’s malls.
There is a viable argument that the U.S. is simply over-retailed, with CoStar Research calculating it may be overbuilt by as much as 1.1 billion square feet primarily due to overbuilding prior to the Great Recession and the rapid growth of e-commerce. As a result, owners and developers are getting creative and finding the inherent opportunity that comes with larger retail projects and once-prominent regional malls – their location. Functionally obsolescent and struggling large-scale retail centers are coveted spaces for adaptive reuse since by necessity most are advantageously located near major transportation corridors proximate to significant population centers and include generous parking fields.
The CCIM Institute has forecasted that adaptive reuse of regional malls will be the most impactful trend for retail between now and 2025, and that the 5 regions that are expected to see the greatest number of mall closings and contraction in per capita retail by 2025 based on mall inventory and deteriorating performance metrics will be California, Florida, Texas, Pennsylvania, and New York.
In response, architects and developers are increasingly occupied with transitioning projects from pure retail to mixed-use, hospitality, office, education, healthcare, and even residential campuses. Dark big box retail buildings are finding new life as distribution centers, schools, medical campuses, multifamily projects, senior living facilities, hotels, mixed-use office and retail space. Stores have turned into mini-fulfillment centers and pickup points in response to a surging e-commerce sector. Retail landlords are leasing mall space to coworking companies. There are some challenges that can present when mall redevelopments are faced with obstacles including restrictive covenants, zoning and co-tenancy/use challenges. Some of these issues can be difficult to overcome as it’s not always simple to convert to another use, but in many cases those roadblocks can be overcome, and plans can move forward.
Let’s look at an example of this trend in Florida. RD Management purchased the dying University Mall adjacent to the University of South Florida in Tampa in 2014 and has been conceptualizing development plans ever since. In July 2020, RD announced that the newly repurposed property would be called RITHM at Uptown, an acronym for Research, Innovation, Technology, Habitat and Medicine. Construction is now underway to convert the mall's former JCPenney to office space, and the owner has sold a portion of Sears' former acreage to a student housing developer Core Spaces, which is planning a $60 million project there called Hub Tampa that will include a parking deck and 373-unit, 887-bed student housing project on the property. When the redevelopment of the University Mall is complete, it could exceed seven million square feet, potentially making it the largest mixed-use space in the state.
Pivoting toward another kind of opportunity, let’s take a moment and consider the implications and benefits for the healthcare sector. Empty shopping centers and dark anchor boxes are being converted to medical space as a growing patient base creates additional demand for services, and repurposing existing buildings conserves both capital and time resources, enabling them to serve their patients more quickly. For example, the former Sears location at The Oaks Mall was recently repurposed into a new location for three new medical specialty practices of UF Health. The 139,000-square-foot former anchor box now offers services for ear, nose, throat and allergies, eyes and hearing with 90 exam rooms and 19 patient treatment rooms. The location checked all the boxes for UF Health because it didn’t require ground-up construction, offered a 500-space parking field, and was located proximate to Interstate 75.
A majority of Florida’s most prominent planned adaptive reuse projects are located in South Florida, including one ambitious mall redevelopment in Wellington where plans were recently withdrawn by owner Starwood Retail Partners due to fiscal constraints. Many projects to date in the Orlando and Jacksonville markets have largely tended to involve the repositioning of dated or functionally obsolescent industrial and office properties, however there is a world of opportunity in those markets as well, perhaps most notably in Orlando’s southwest tourism corridor.
An interesting trend to look at in South Florida is that of transforming non-traditional projects into retail centers – the polar opposite of what we have discussed thus far. For example, Tricera Capital has obtained a $50.8 million loan to redevelop the former Palm Beach Post Office campus into a 265,000-sf mixed-use redevelopment project called The Press. Plans call for a combination of office, retail, and entertainment space to be called Shops at The Press and Workspaces at The Press, both of which will be geared towards West Palm Beach’s young professionals and emerging business culture.
A new retail story is being written, and it’s happening now.
Sustainability is top of mind for many these days, so let’s think green for a moment. The reuse of older structures is an eco-friendly and sustainable choice in building as there are also environmental benefits in choosing adaptive reuse over new development. There is a significantly lessened impact on the environment as acquiring an existing property preserves the site and building, resulting in less physical and energy waste through reuse of discarded material, decreased transportation costs, and fewer costs for materials, manpower, and structural building construction.
In conclusion, retail oversupply in the U.S. – and in Florida – is a matter to contend with over time as properties age into functional obsolescence, however adaptive reuse can – in some cases – check all the boxes. By combining an existing viable footprint with mixed-use components and sustainable business models that better serve the community, developers can create engaging living, working and social environments that will stand the test of time and offers benefits that will appeal to multiple stakeholders in the process.