THE PERFECT STORM - REPURPOSING RETAIL

THE PERFECT STORM - REPURPOSING RETAIL

COVID-19 has accelerated what is already happening for many years. There is a growing oversupply of retail space, so regeneration and repurposing of retail facilities is drastically required to find solutions for millions of square feet of prime real estate. There is not one strategy nor one action to live up to this challenge, we rather require custom made repurposing for different assets. Every underperforming mall has its own set of opportunities and obstacles.

Let us start with a list of what most of these assets have in common:

- Good Accessibility

- Ample parking

- Flexible floor plans

- Excellent inter-floor connectivity

- Large climate-controlled spaces

- Well known destination

- Well defined back of house operation

Depending on the location, the size, the condition, the debt level and the neighbourhood of the asset, different strategies can be applied. In the following section we will discuss some different ways for repurposing.

Repurposing Strategy 1 – The Retirement Retreat

One of the fastest growing business opportunities is the focus on the retired population. A place catering for retirees including assistant living is one way of repurposing. By doing so, the retail space would be repurposed by e.g. 60% and still maintain some retail content. It further would feature a vertical integration strategy with hospitals, physicians, restaurants and other businesses. The existing escalators and elevators will provide an ideal way for elderly people to move around. Large Air-conditioned space will allow, specifically in warmer climates, for a perfect year around living and entertainment model. Connectivity to public transport, common to many retail locations, will provide easy access for visits and for excursions.

Repurposing Strategy 2 – The Mixed Used Community

A modern living environment combined with a next generation work culture featuring meeting rooms to rent, promoting a hybrid home office working culture, is another opportunity. Again, a part of the retail space would be maintained offering a perfect live, work and play balance. Grocery stores, schools, nurseries, retail, entertainment, dining, indoor work out/ jogging paths and other amenities are all within walking distance. The repositioning of retail hubs into thriving mixed-use communities is a prime opportunity for many spaces.

From a capital markets perspective, there is a growing investor interest in mixed used communities, providing more stable returns against other real estate asset classes. The same will have been further enhanced since Covid-19 however, the potential for this repurposing requires both careful planning around design and access for the successful integration of the use cases, but also a new operational approach to the work, life and play balance.

Repurposing Strategy 3 – The Local Distribution Center

The best customer experience is not an online only or retail only strategy but a combination of both models. Where the online lacks a physical space for consumers to get a hands-on purchasing experience and a next day delivery strategy becomes difficult, a combined “physical online retail” strategy could become the best way forward. The Amazon strategy to convert shopping malls into fulfillment centres for its recent one-day shipping promises is a clear sign of the need for local logistics requirements. However, taking the concept one step further and developing a combined client experience and delivery center can be the next generation of retail. Customers can try clothes, get hands-on experience and consultation. Stores will not stock items but merely provide a customer experience. Fulfillment is provided through highly effective centralized fulfillment centers based on the same location. Items can be delivered to the store within minutes or to the home within the same day.

The above 3 examples are only a small representation of possible use cases. Other repurposing strategies such as the conversion to a health care facility, auto mall, data center and others can be explored.

About the Author:

Markus Giebel is the CEO of CES Investments, a fund management and financial service company located in the DIFC and regulated by the DFSA. He also is the co-owner of Soliton Holding and was before the CEO of Deyaar Development, a public traded real estate developer. Mr. Giebel serves on several Boards and is a thought leader within the industry.