The landscape of old shopping centers is changing. With the closings of big-box stores like Sears, K-Mart, Best Buy, Big Lots, Macy’s, and Babies R Us/Toys R Us, once vibrant and bustling shopping centers seem to have lost their luster. Driving by such an empty or underutilized shopping center, you may have thought, “That place is dead, how can such a large space ever be used again? What are they going to do here?” Developers and retailers have a different perspective - they see a great potential to re-use and re-purpose these empty stores.
Large big-box stores can be difficult to re-use in their existing configurations. However, some innovative developers are thinking outside of the box to utilize these large buildings by breaking up such spaces into several smaller suites, or by converting them into non-traditional uses such as schools/campuses, medical facilities, apartments, corporate offices, or churches.
One of the more innovative transitions for these locations is the conversion of large retail space into a combined self-storage facility/shopping center. But how and why would a self-storage facility mesh well with retail? There are many benefits to these conversions. Developers, landlords and retailers have found that by re-purposing big boxes into self-storage facilities, once vacant locations are generating rent, shopping centers are redeveloped, and current consumer trends are supported.
These retail centers are typically situated in densely populated areas with constant vehicular traffic. While typical self-storage locations have been traditionally located away from retail centers within industrial or light-industrial areas, self-storage facility operators are often willing to pay higher rent for better exposure. Owners will gladly accept rent for such spaces instead of generating no income from vacant big box stores.
The footprints of these existing spaces are largely open “big-box” space that are easily convertible to install climate controlled portioned spaces. As long as the space can be reconfigured to meet minimum size and height requirements for the storage units, the renovation cost is typically less than a ground-up development. Developers are also willing to go vertical with multi-level facilities, which work with high ceilinged or multi-story locations. Ample parking is available, and because parking requirements for self-storage uses are significantly lower than that of retail, if permitted by zoning, it is possible for shopping center owners to create additional pad sites on once barren parking fields.
There is a need for easily accessible storage space. As baby-boomers downsize and millennials seek smaller urban residences, they all need a place to keep their belongings. By merging self-storage facilities within existing retail centers, several consumer needs can be satisfied at once. This combined space creates a relaxing, engaging environment in a now viable and active shopping center – different from the traditional storage locations we have come to expect. In this combined development, patrons can shop and store in one convenient location without making a separate trip to an industrial park.
So what are the difficulties that may come with these types of conversions? A developer’s decision to pursue such a conversion must first be weighed against potential pitfalls, such as financing and acquisition costs, zoning and permitting, and the nature of the existing facility, to ensure a successful re-development.
- Financing and Acquisition Costs: Because of the potential expenses incurred in re-purposing a building, a developer acquiring a property to convert into a self-storage facility will need to negotiate a purchase price as close to the value of the land without consideration of the current use of the building. Ultimately, a lender’s willingness to provide financing or to permit a conversion of the permitted use of the property or of existing financing will depend on anticipated cash flow. If an existing retail center is encumbered with debt, the mortgage lender may not be willing to permit a conversion or alter the permitted use under its loan agreement. If new financing is required, a lender may be hesitant to finance a self-storage facility in a shopping center. A developer will need to address these issues with its lender before any conversion project can proceed.
- Zoning: The zoning district of a property and the uses permitted therein must also be considered. If a self-storage use is not permitted by right in the zoning district in which the property is located or is permitted only by the granting of zoning relief, developers may spend months attempting to obtain the required relief and negotiate acceptable conditions to such zoning relief.
- Permitting and Approvals: In addition to zoning considerations, the permitting and approval process may take considerable time to complete a property conversion. Municipalities may see reduced parking fields as an opportunity to obtain additional landscaped green open space areas as opposed to a developer’s desire for additional pad sites.
- Facility: The existing features of the current structure must also be considered. A facility with existing loading bays and access ramps will be significantly easier to convert than a structure with no loading area, as vehicles may need access to the building. Municipalities may be unwilling to grant a building permit or impose strict conditions in the granting of such permit if a redevelopment requires new access ramps and loading or if exterior walls need to be demolished. A stand-alone big box store will be easier to convert than an in-line anchor, which if partitioned, would require the implementation of a reciprocal easement agreement in addition to other costs and expenses to segregate the space. Self-storage facilities often require interior climate control, insulation and HVAC systems. As such, an existing facility that includes such features is much more attractive than a facility that needs such systems installed or upgraded. If a developer desires a higher-end facility, the space must be large enough for the potential installation of vehicle elevator systems.
If any of the above scenarios exist, the re-development and conversion of an existing space to a self-storage facility may be cost prohibitive. If these potential pitfalls, however, are not present or can be addressed, the conversion of big box stores to self-storage facilities is a viable development opportunity.
Owners, developers and consumers could all benefit from the re-purposing of “dead” space into more convenient and viable uses. As consumer trends continue to evolve, it will be interesting to see if shopping center owners and self-storage operators continue to re-develop and re-purpose existing retail centers as self-storage facilities, or whether the market will dictate some other use. For now, instead of only enjoying the benefits of “stop and shop,” we can all “stop, shop and store.”