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Pandemic, Shrinking Store Presence Could Drive Large-Scale Repurposing of Retail Space

  • Assessment by global consulting advisory company PwC determines that the United States is overdeveloped in retail space compared to other Western nations
  • COVID-19 and retail’s dwindling physical presence could result in vacant spaces being repurposed or demolished
  • Pandemic has also made more office space available, though this trend may reverse later on

When the COVID-19 pandemic struck the United States, it accelerated a years-long trend of customers eschewing in-person shopping in favor of e-commerce. While the increase of shuttered stores can be a distressing sight, it might also lead to a “right-sizing” of retail space and opportunities for large-scale neighborhood redevelopment.

The global consulting advisory company PwC says the U.S. has the highest ratio of retail space to population, with an estimated 23 square feet per person. This far exceeds the more modest ratio of about five square feet per person in France, Germany, and the United Kingdom. It is also considerably higher than other Western nations with a greater retail presence; the ratio is about 11 square feet per person in Australia and 16 square feet per person in Canada.

The PwC analysis blames suburban sprawl, which often incorporated strip malls or other businesses at intersections, for the glut of retail space. It forecasts that the continuing growth of e-commerce will cause existing vacant spaces to be repurposed for more in-demand purposes, such as health care facilities, educational annexes, and last-mile fulfillment centers for delivery companies. Some retail structures could be demolished and replaced with housing or mixed-use developments.

Several major retailers – including Brooks Brothers, J.C. Penney, and Neiman Marcus – have filed for bankruptcy during the pandemic. Mall landlords have also been hard-hit, with some seeking bankruptcy protection or closing down properties. Some businesses have been cutting back considerably on their brick-and-mortar presence in favor of digital sales, with Gap shrinking its mall stores by 220 and Banana Republic planning to close 130 locations.

Malls may continue to find a way to survive in the post-pandemic world, however. Some retailers, such as Old Navy, continue to be successful with in-person shopping and are planning expansions. The pandemic has also caused mall landlords to offer more affordable leases, which could be useful in attracting more modern developments. For example, the Simon Property Group is reportedly considering a deal with the e-commerce giant Amazon to transform empty department stores into fulfillment centers.

COVID-19 has also led to an excess of available office space, with some long-term tenants seeking to sublet their spaces. Available sublease office space in the U.S. increased by 42 million square feet in the second and third quarters of 2020, ballooning the space available for sublet to 157 million square feet.

However, this account for only 1.7 percent of all office space in the nation, and an increase in sublease offerings typically accompanies an economic recession. It remains to be seen whether a demand for office space will return or whether the increased use of technological options and remote work will diminish the appeal of permanent office space.

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