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Recycling the Big Box

Matthew E. Epstein's picture

Retailers shuttered a record amount of brick-and-mortar store space in 2018, shattering the previous record set in 2017, and big box stores were the largest contributors to the empty space. Iconic brands, such as Sears, Macy’s, J.C. Penney, Toys "R" Us, Inc., Bon Ton and Lord & Taylor all closed their doors on multiple large spaces, leaving landlords in a quandary about how to fill some gaping holes.

For more than four decades, big box stores led the way in retail sales growth, crushing smaller competitors who could not compete. But department store sales peaked at nearly $60 billion in 2001, and have sunk more than 33% thereafter.

So who is taking down Goliath? E-commerce constitutes the fastest-growing segment of retail sales, rocketing from less than $5 billion in 2000 to more than $115 billion in 2017.

Now landlords and local planners must think creatively about how to fill those ghost boxes so that they don’t become magnets for graffiti, vandalism, crime and visual blight. The problem is so big that Los Angeles passed an ordinance requiring large retailers to submit contingency plans for so-called “adaptive reuse” in the event that their stores are closed.

Adaptive reuse is a green low-carbon solution that turns ghost boxes into useful contemporary frameworks for vibrant facilities that benefit the community and bring potential customers to surrounding businesses.

Adaptive reuse projects are as varied as the imaginations of the collaborative professionals who work on them, including city planners, landlords, tenants, and redevelopers, as well as their architects, designers and lawyers. Some of the interesting expressions of reuse that have been documented by multiple industry sources include:

  1. Hotel and Residential Buildings. Many big boxes offer enormous space in a solid framework that is typically located on a major roadway, conveniently close to smaller specialty retail outlets, restaurants and other popular destinations. The average Sears store, for example, has a footprint of more than 100,000 square feet, which can be converted into dozens of residential units. One mall operator in the northeast – known as PREIT – has reportedly announced plans to add up to 7,000 residential units and 3,000 hotel units across its mall properties in the coming years.
  2. Retaildential ComplexesThe Arcade Providence, an indoor retail mall that opened in 1828, was renovated into a complex of 48 micro-apartments and a variety of small business locations in 2014.
  3. Restaurants. Many popular restaurants, such as the Cheesecake Factory, require large spaces with plenty of parking, and they draw more foot traffic than traditional anchors. This is particularly true now because Millenials consume most of their meals in restaurants, 30% more than any prior generation. That is why restaurants reportedly occupy 20 to 40 percent of gross leasable area in shopping centers, at least double the amount of ten years ago.
  4. Cinemas. Many shopping centers now feature cinemas in place of retail anchors, including some cinemas that offer fine dining, extra-large or 3-D screens and luxury seating options.
  5. Entertainment Venues.  A growing number of retail centers feature large entertainment operations, such as Dave & Buster’s arcades and bowling alleys with food and beverage services. Children’s [sounded too much like the kids were large] entertainment destinations include Chuck E. Cheese, Legoland, Crayola Experience, Gymboree, Kidzania and Kidmazium. 
  6. Experiential Centers. Consumers in the coveted 18 to 34-year-old demographic are more willing to pay for “experiences” than merchandise. Industry publications have reported a multitude of creative reuses for big box spaces built around experiences, including indoor ski slopes, ice rinks, rock climbing gyms, indoor simulated skydiving facilities, go-cart tracks, trampoline parks, and aquariums.
  7. Cultural Facilities. Julia Christensen, author of “Big Box Reuse,” has documented the transformation of some big box spaces into museums, community centers, senior centers, medical centers, courthouses and even churches.
  8. Office Spaces. As part of a more recent trend, companies have started to utilize large retail spaces for office locations. Access via major traffic arteries or public transportation is a plus for employees, as is proximity to restaurants and retail stores that they might not otherwise take time to visit by driving.
  9. Data and Property Storage Facilities. Data and property storage operations require large amounts of space and temperature-controlled environments for which big box spaces are well suited. Data facilities also house many employees that value access to nearby restaurants and retail outlets while property storage facilities bring visiting tenants and value a secure environment that is not isolated from activity. Documented cases of these conversions have taken place in Cincinnati and other locations.
  10. Other Potential Uses. The future is bound to bring more innovative versions of adaptive reuse. Some of the many possibilities include indoor parks for paintball, butterflies?, or pets. Obstacle courses, gyms and spas for people and their pets are also popular. The potential exists as well for large auditoriums where some combination of live theater, entertainment and learning takes place. TED talks, educational lectures, comedy shows, musical acts and large-scale corporate training can all take place in a facility designed for dramatic stage presentations. 

The need to adapt will only become more important in the coming years as department store commerce fades while more than 350 million square feet of big box mall space is still in use. For more rich and timely data pertinent to the retail sector, check out the U.S. Census site and the Directory of Major Malls.

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Matthew E. Epstein's picture

American and international retailers turn to Matt Epstein for business and real estate law advice. Matt has coordinated the national roll-outs of stores for numerous retailers including J.Jill, J. Crew, kate spade, Tory Burch, Betsey Johnson and Swarovski Crystal, including the negotiation of leases at regional malls and urban locations. Matt has over 25 years of experience in a wide range of real estate matters.

Prior to joining the firm, Matt clerked for the Honorable Morey L. Sean, Federal District Court, Eastern District of Louisiana. He is a Director and a Co-Chair of the firm's Retail, Restaurant & Consumer group.