Repurposing Of Retail Space

June 28, 2021 | By Shari Hunn

Even before the pandemic, many retail stores were grappling to stay afloat as the preference of consumers to purchase goods online increased.  Covid-19 obviously accelerated this trend, causing numerous shopping malls and retail centers to close.  As more and more of these businesses fold, the correlating values of these vacant shopping centers and malls decrease. 

Venture capitalists, developers, and large-scale distribution centers have been taking advantage of such closures.  They have been buying these properties for pennies on the dollar and repurposing them into warehouses, residential properties (to include student housing in college locations), offices, medical/lab space, mixed-use, and other alternative operations.

Often the location of the land underlying the obsolete retail spaces are in high demand.  Malls, in particular, are generally close to public transit and major highways.  The parking is usually sizable enough to easily erect new buildings or enlarge existing ones.

The repurposing plans for these properties are made based upon what is already in the area such as neighborhoods, schools, and hospitals.  If some of the retail stores remain, and a mixed-use project is sought-after, the new uses are brought in to complement the existing retail space, such as residential, office use, and public open space.  The varied but complimentary utilization of mixed-use properties creates additional reasons to be at the site, generating more activity and hopefully a higher profit margin.  

Prior to repurposing, the developer will need to obtain community backing and input, investors, and proper zoning.  Re-zoning is often a laborious exercise with not a huge probability of success.  However, if it can be shown that empty storefronts will be redesigned to make the area more attractive and that jobs will be produced, tax revenues collected and/or homes will be built at a time when demand is at record high levels, municipalities will be more willing to agree to zoning changes and may even throw in tax incentives for good measure.

Another factor to consider in repurposing retail properties is the currently high cost of building materials such as lumber, steel, and aluminum.  Adaptive reuse of existing building material may offset any increases in the cost of new materials. Energy efficiency should also be considered.  Eco-sustainable real property accrues higher market value because it lowers operating costs, increases resale value, and attracts customers and residents who support green businesses.  

Newly added to this list of considerations is pandemic friendly improvements, including contactless entry, ultraviolet air purifiers, high-efficiency particulate air purifiers, other air exchange and flow considerations, faster vertical transportation, and larger units with more outdoor space.

Whether introducing brand new purposes onto existing property or strengthening existing retail with additional complementary uses, retail centers are being transformed.  There are numerous creative and profitable ways to inject new life into abandoned shopping centers in order to align with market demand and community needs.  Those builders who are willing to reshape their investment portfolio to alternative uses, while also embracing Covid-19 security and a sustainable buildout, can make for a successful commercial return.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

About the Authors

Shari Hunn

Of Counsel

Shari is a real estate attorney, focusing her practice on drafting, reviewing and negotiating leases and related documents. Shari thrives on the challenges of puzzles, which she finds relaxing.  Similarly, she regards...

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