The coronavirus pandemic has had a devastating impact on retailers since taking hold in March 2020. And in the one-year span since the outbreak began, dozens of popular retailers have filed for bankruptcy. Not all of those filings have resulted in widespread store closures, but some have. Famed department store Lord & Taylor, for example, officially shuttered all of its locations last year after almost 200 years in operation. And if retail revenue doesn't pick up soon, more department stores could follow suit.
If that were to happen, it would be devastating to the many malls and shopping centers that rely on department stores to serve as anchor tenants. Department store space is extremely hard to fill due to its large size. As such, mall and shopping operators may need to get creative as more retailers go out of business or make the decision to not renew their leases for underperforming locations. Converting department store space to laboratories may be one option to pursue.
Filling space, filling a need
Though there's always been a solid use case for laboratory research, there's perhaps a no more opportune time to open new labs than during a global pandemic. And empty department stores could end up being a good place to house those laboratories.
Not only are those spaces expansive, but they generally offer decent ventilation. In fact, the trend of converting unused department store space to laboratories is already taking off in the United Kingdom. If department store vacancies increase domestically, U.S. mall and shopping center operators may wish to follow suit.
Of course, the concept of repurposing empty department stores is nothing new. Last month, an empty Sears (OTCMKTS: SHLDQ) was pegged to serve as a coronavirus vaccine distribution center in Iowa. Meanwhile, investors are already toying with the idea of turning vacant department stores into everything from classrooms to medical clinics to offices and conference centers. To turn empty department stores into laboratories isn't such a stretch.
That said, there are environmental considerations to factor in when converting department stores to labs. Laboratories tend to utilize more energy than traditional businesses, and there may be waste removal issues to consider as well. But if those logistical concerns can be addressed properly, mall and shopping center operators may have another viable tenant group to market to -- and a way of salvaging large, empty spaces rather than having them sit vacant.
The Millionacres bottom line
The future of mall and shopping center real estate investment trusts (REITs) has been somewhat precarious since the pandemic began, and with a slow vaccine rollout and COVID-19 cases continuing to multiply, the crisis is still far from over. The longer it drags on, the more retailers stand to get hammered, which could leave malls and shopping centers with major revenue declines to grapple with as tenants stop paying or pull out of leases. Catering to laboratories is therefore a solid means of partnering up with a viable industry -- one that's unlikely to slow down in this day and age.