Retail-to-Industrial Property Conversions Accelerate

Retail-to-industrial property conversions are accelerating across the U.S., driven by the growth of e-commerce. There are now 59 such projects that have either been completed, proposed or are underway since 2017—up from 24 in January 2019, according to a CBRE Research survey. These projects total approximately 13.8 million sq. ft. of retail space converted to 15.5 million sq. ft. of industrial space.

Underperforming retail sites have become an ideal location for last-mile warehouse developers. They are often located within population centers, connected to utilities and have large parking lots with multiple points of ingress and egress. Many are also freestanding big-box stores with existing dock doors and clear heights compatible with industrial use. Those without compatible design formats are typically demolished and replaced with modern warehouse facilities.

The top five markets for these conversion projects are Milwaukee, Cleveland, Chicago, Omaha and Dallas/Ft. Worth, accounting for one-third of the total number of projects nationally. This is primarily due to the number of “dead malls” in the Midwest. Looking ahead, the changing tide of retail, the growth of online shopping and the steadily increasing demand for industrial space could extend this development strategy to higher growth markets in the Southeast and West regions.

The after-effects of COVID-19 will accelerate this trend. Stay-at-home orders across the U.S. have introduced an entirely new customer base to e-commerce. Adobe estimates that online sales in April and May were 7% higher than those of the 2019 holiday season and were $52 billion above normal online sales in April and May. The disruption to the retail sector and the growth of e-commerce will continue to increase the viability and payback of retail-to-industrial property conversions.