Department store closings continue to raise concerns about the long-term viability of shopping centers, but maybe the doomsayers have it all wrong. Shuttering failing anchors and recapturing under-utilized space could unleash the opportunities needed to revitalize retail mixed-use development and improve profitability now and in the future. Following are just a few ways lights out at department stores can mean a brighter path moving forward.
Breaking it up. Many developers are already breaking up anchor spaces to attract a variety of smaller tenants and, in the process, charging higher rent. In some cases, the new leases triple or even quadruple the rate department stores previously paid. For example, Seritage Growth Properties, a real estate investment trust (REIT) spinoff from Sears Holdings, has been gradually re-developing space once occupied by the department store at an average base rent of $4.40 per square foot and re-leasing it to replacement tenants for more than $18.00 per square foot, according to a report by commercial real estate services provider JLL.
Subdividing an anchor space to sign on multiple tenants presents its own set of challenges, the most significant being the separation of utilities and individual store/brand visibility. Whereas a department store operates under a single identity and requires only a few entrances and one loading area, leasing to multiple tenants, however, may mean the need to accommodate competing requests for dedicated signage, entrances, and loading.
Looking to education. Malls are incorporating more experiential businesses as a way to adapt to changing shopping trends, but schools may emerge as a win-win solution to fill the void left by department stores that have gone dark. Not only do they help reduce the glut of retail space and require ample square footage, but the thousands of students they bring could potentially drive traffic to other businesses in the mall, or even attract new tenants. In Scranton, Pennsylvania the opening of a Luzerne County Community College campus inside The Mall at Steamtown has prompted some retailers to consider opening up shop or staying put.
In communities with a shortage of schools, revamping mall space can be more cost-effective than building a school from ground up and takes less time. After a tornado leveled several schools in Joplin, Mo., in 2011, DLR Group programmed, designed, and completed construction on a temporary facility for Joplin High School in 55 days with a budget of just $5.5 million. To house 1,200 students, the interim school repurposed a vacant, 96,000-square-foot big-box retail space that was connected to a mall. The mall location easily accommodated the high volume of traffic needed to complete the project on time, while the building’s existing high-bay ceilings and large open spaces made it ideal for that facility type.
Rethinking parking. Because real estate deals with department stores have traditionally included control over large parking areas, closing those stores frees up this land for redevelopment into other uses, such as housing or hotels. If new facilities are not part of a renovation plan for shopping malls, maintaining parking access for consumers is paramount. Following the closing of Robinsons May department store at Westfield’s Santa Anita Mall in Arcadia, California, DLR Group’s 120,000-square-foot renovation included the meticulous coordination of infrastructure engineering and exterior architectural services. Phased project milestones simultaneously preserved parking structures and pedestrian access, despite the installation of exterior sky bridges and pathways.
Moreover, as autonomous vehicles come of age and proliferate, the need for large parking fields or garages will greatly diminish. When that will happen is anyone’s guess, but municipalities have already begun to relax parking requirements for shopping centers, and planners are studying flexible parking decks that can be easily converted to other applications when the time comes.
Until then, one might do well by recognizing that in both life and retail mixed-use development, when doors close, windows open.