Trends in Commercial Real Estate: Adaptive Re-Use Projects
With the advent of what is being dubbed the ‘retail apocalypse’, millions of square feet of formerly-thriving retail space now sit empty. Landlords and developers are looking towards adaptive re-use to breathe new life into these buildings, drive profitability and offer new services to businesses and residents.
Although A-class malls are still doing well, B and C class malls have had a tough time, with core department stores and stable tenants like Macy’s, Sears, Payless and The Limited announcing massive closures. This has had a knock-on effect ranging from complete mall closures, to malls across the country left with large anchor spaces they are struggling to fill.
Freestanding retail stores have also experienced a decline, and many industrial spaces are no longer needed for manufacturing. These are all ripe for adaptive re-use projects.
Adaptive re-use can be less expensive than a new build, and including modern value-adds in the process of an adaptation can serve to attract tenants to spaces that may be hard to lease otherwise. There are many outdated and ‘dark’ buildings throughout the U.S. Adaptive re-use is an attractive way for developers and landlords to revitalize those spaces, and is especially thriving in cities, where these projects can enhance neighborhoods and give developers a competitive advantage in the market.
Here are a few trending ways that developers are re-utilizing malls, historic buildings, and industrial buildings and achieving success and profit:
Lifestyle centers – these often include expansive athletic & fitness components like obstacle courses, fitness centers, hockey rinks, bowling alleys, soccer pitches, training centers, running trails, even indoor ski slopes. Example: Chelsea Piers in Manhattan
Urban farming – Urban farms are becoming very popular. Two examples are the UF de Schilde project in the Hague and Aerofarms in New Jersey. Aerofarms’ most recent venture was to renovate a former steel mill in Newark into a 69,000-square-foot urban farm.
Housing centers – condominiums and apartment complexes are a common example of adaptive re-use, but mixing residential spaces with existing retail and restaurants is a great and trending way to attract new residents. These centers – with entertainment, shopping and leisure activities right on residents’ doorstep – are a big attraction for luxury executives or retirees. Existing infrastructure and retail stores make it an attractive proposition to work residential into struggling C and D class malls, rather than trying to shoehorn retail spaces into existing residential communities. These housing centers can also include emergency medical services, holistic wellness and religious / spiritual centers, which are a big attraction in rural areas where access to those services may be lacking.
Regional distribution & fulfillment centers – given the meteoric rise of online shopping, there is fast-growing demand for these types of centers. Distribution centers need to be in areas with convenient access to highways, and existing malls often have the location and space to be converted and to take advantage of this trending need. This could also be a mixed-use proposition, with part of the space used for warehousing & distribution and part used for retail stores that act as showrooms for customers to browse the products.
Entertainment venues – cinemas, performing arts venues, theatres and outdoor amphitheaters are all attractive ways to adapt existing structures.
Creative office spaces – technology and media companies are fueling demand for this new generation of office space. The hallmark features include open plan offices, natural lighting, cafeteria and recreation areas. Creative office space is a trend driving a lot of adaptive re-use projects in urban areas where companies can attract employees who want an environment that encompasses live / work / leisure all within a close radius.
Co-working facilities alongside Higher Ed & start-up communities – companies are developing partnerships with Universities and developing co-located facilities, to mutual advantage. One example is JLabs, which is owned by Johnson & Johnson and has opened six co-working facilities totaling 150,000 square feet. They partner with Universities and Higher Ed facilities to offer biotech, pharmaceutical, medical device and similarly-focused companies space to work and to hopefully foster cross-sector solutions and collaborations.
Adaptive re-use projects are thriving all over the country. Here is a look at some of these projects in more detail:
Chicago, IL: The Fulton Market cold storage warehouse was transformed into creative office space that attracted the likes of tenants such as Google. The property was purchased at $27 per square foot and after the adaptation, the 531,200 square foot property was sold at $572 per square foot. It has also transformed the neighborhood and attracted other development, such as an Ace Hotel across the street which will open in Fall 2017, which is another re-use project, transforming a former cheesemaking factory into the boutique hotel.
Boston, MA: 160 N. Washington St. is a 214,000 square foot former warehouse space that was acquired for $22.5 million. After its conversion into the corporate headquarters of Converse Inc it was then sold for $150 million. The headquarters include office space, a recording studio, a space for live music and a 3,677-square-foot retail store.
Buffalo, NY: One Seneca Tower is an extensive re-use project, which is currently underway. The first phase will include conversion of 193,000 square feet of office space into apartments and retail. The plans are expected to include a grocery store, an REI, micro breweries and restaurants. There is also expected to continue to be some office space in the Tower.
Wichita, KS: The 55,000 square-foot site in Brittany Center that had formerly been a Hobby Lobby was vacant for almost 3 years. It was re-purposed into Xtreme Racing & Entertainment, which offers a destination attraction for younger adults in the area.
Brooklyn, NY: Bush Terminal in Brooklyn is one of the largest industrial properties in the U.S. Originally used for warehousing and shipping, it also handled manufacturing, including production of baseball cards. It was re-named Industry City in the 1980s and was extensively re-developed in 2011 in a 10-year, $1 billion project, which has since acquired new ownership and further investment. The site is not complete, but it already hosts the Brooklyn Nets NBA team, who opened a 70,000 square-foot, $50 million rooftop training center at the site. The Bush Terminal complex also includes 773 parking spaces and 500,000 square feet of retail space.
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