As they scramble to adapt to red-hot growth in e-commerce orders, U.S. companies are accelerating a trend of converting retail sites into industrial operations such as last-mile distribution hubs for fulfilling online purchases, according to a report from real estate services and investment firm CBRE Group Inc.
The Los Angeles-based firm found that 13.8 million square feet of retail space has been converted to 15.5 million square feet of industrial space across the country since 2017, a shift that is likely to accelerate as e-commerce continues to expand and industrial rents reach all-time highs.
The study shows 59 retail-to-industrial conversion projects that have been completed, proposed, or underway since 2017. This is a marked increase from the previous survey in January of 2019, which counted just 24, CBRE said. Of those 59 projects currently tracked, 40 of them, or 67.8%, are conversions or adaptive reuse, while the remaining 19 projects (32.2%) are properties that were demolished for new construction.
“As online retail evolves and expands, many retailers and developers will find opportunities to convert underperforming stores into final-mile distribution sites to support ecommerce operations,” John Morris, Americas Industrial & Logistics and Retail Leader for CBRE, said in a release. “With rising industrial rents and changing consumer patterns, we should see this activity continue to grow, as more retail sites will be economically viable for these types of conversions.”
Sorted by geography, the greatest number of retail-to-distribution conversions are seen in Milwaukee, Cleveland, and Chicago—due to the large volume of “dead malls” that plague the Midwest—while some projects are also underway in Omaha and Dallas/Ft. Worth, CBRE said.
