We've written about how pandemic lockdowns and the safer-at-home lifestyle dramatically accelerated the shift from brick-and-mortar to e-commerce retail. To be clear, that change was well underway for some time, and many retailers had adjusted their strategies based on changing consumer spending habits. But many that were not prepared to pivot quickly when the coronavirus changed the market, so they dramatically went under.
Just how bad is the damage? According to Bloomberg, a whopping 40% of department stores have closed over the past five years. That's an awful lot of vacant commercial real estate.
Thankfully, the tide is beginning to shift. Retail closures have slowed dramatically this year, and many brands are actually making plans to expand their physical footprints. But even if things continue in this positive direction, refilling all that space again will take time.
Let's look at how some creative developers are repurposing vacant department store spaces right now and how real estate investors can benefit.
The new lives of old department stores
When vacated real estate is in good shape, repurposing it rather than demolishing it and building from scratch is usually a win, both financially and environmentally. And with central locations, open floor plans, and sometimes even unique or historic architecture, commercial spaces that spent their past lives as department stores are full of potential.
Here are some of the most popular uses developers are putting them to right now.
In Texas, Austin Community College's largest campus, the Highland Campus, is housed inside what was once a major shopping mall. The college refers to the campus as "a national model for sustainable, adaptive, community-minded reuse," driving home the point that these types of redevelopment projects can also bring good publicity. The adapted space boasts unique study spaces, including a glass portico and indoor fountains. Of course, these types of renovations don't happen overnight. The college has spent over a decade on the project.
According to American Libraries magazine, large, modern stores are some of the best spaces for library conversion. The high ceilings, architectural details, and large parking lots are big pluses for these spaces. The Northside branch of Jefferson-Madison Regional Library in Charlottesville, Virginia, was once a building supply store. And according to Bloomberg, the Stavros Niarchos Foundation Library on Manhattan's Fifth Avenue occupies a Second Empire building that opened in 1914 as the uptown branch of Arnold Constable & Co., America's first department store chain.
Many office workers have become accustomed to working from home during the pandemic. And some companies are looking for ways to make the office a more appealing place as a result. Repurposing historic department stores with unique aesthetic appeal can be part of that initiative.
When technology incubator NextCorps recently moved from the suburbs to downtown Rochester, New York, the company made the sixth floor of the former Sibley's department store its new home. Built in 1905 and later expanded, the 1.1 million-square-foot building features tons of windows and a striking clock tower. NextCorps added a few modern design features to complement the architecture, like glass walls for offices, and brought in modern furniture, creating an eye-catching juxtaposition of old and new.
But wait: If NextCorps moved into the sixth floor of the former Sibley's, what about the rest of that enormous building? WinnDevelopment bought the entire building for $5 million in 2013. And with a $100 million renovation, they transformed the property into Sibley Square, a mixed-use property that in addition to office space includes retail space as well as 104 luxury, market-rate apartments on six floors.
This department store was a big part of the community's history. So it makes sense that people might be excited about living there and helping to preserve a space where they may have fond memories. And those residences are sure to be even more attractive to employees of any of the offices in that building or those nearby. A commute like that would be hard to complain about.
The Millionacres bottom line
Several retailers, including heavyweights like Macy's, Burlington, and Target, are poised to grow and help fill the physical void created by so many department store closures. But for many investors, action is needed now to right the ship quickly. That's where these repurposing projects come in. They allow these spaces to be leased or sold and transformed into something else entirely. These are just a few examples of a rapidly growing movement. Investors can probably expect to see many more of these projects going forward.