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For Surplus Malls, Adaptive Reuse is the Future

The recent news that Prologis paid $117 million to acquire the nearly vacant, 78-acre Hilltop Mall in Richmond, CA points to a larger trend: the adaptive reuse of surplus retail space at once-thriving regional malls.

In a new Sightlines posting, Avison Young notes that technically, this won’t be a redevelopment, since Prologis has said it will likely build from the ground upon the site. However, it does represent a reuse of the site itself in what will be the industrial REIT’s first foray into mixed-use projects, in this case calling for a mix of residential and logistics space along with retail.

“Owners and developers are getting creative and finding the inherent opportunity that comes with once prominent regional malls – their location,” Avison Young reports. “The uncontested pillars of real estate – location, location, location – are still critical, and functionally obsolescent and struggling malls are coveted spaces for adaptive reuse since by necessity most are advantageously located near major transportation corridors proximate to significant population centers and include generous parking fields. After all, adaptive reuse is simply the transformation of an existing structure into a new, more economically viable use.”

Avison Young cites a forecast from the CCIM Institute that adaptive reuse of retail centers and malls will be the most impactful trend for retail between now and 2025. The five regions that are expected to see the greatest number of mall closings and contraction in per capita retail by 2025, based on mall inventory and deteriorating performance metrics, will be California, Florida, Texas, Pennsylvania, and New York.

A couple of examples from within these five regions illustrate the breadth of adaptive reuses being undertaken. In Los Angeles, Westside Pavilion was leased by Google on a 14-year deal and is being turned into a 584,000-square-foot complex for the tech giant. “It will be known as One Westside when the work is complete in 2022, and is being marketed as ‘a first of its kind conversion’ from shopping mall to creative office space,” says Avison Young.

Austin’s Highland Mall was failing due to a lack of economic support from the surrounding area as demographics eroded over time. Howver, Avison Young notes that the property nonetheless is “situated in a prized location proximate to the central business district and the airport.”

Enter a partnership of Austin Community College and RedLeaf Development, which purchased the struggling property and converted it into an academic campus and mixed-use center. Avison Young notes that the project’s second phase, due to be completed later this year, will transform 81 acres into 1,200 residential units, 100,000 square feet of commercial space, 800,000 square feet of office and ample green space.

“Architects and developers are increasingly occupied with transitioning projects from pure retail to mixed-use, hospitality, office, education, healthcare, and even residential campuses,” Avison Young sums up.

“Dark big box retail buildings are finding new life as mixed-use office and retail space. Stores have turned into mini-fulfillment centers and pickup points in response to a surging e-commerce sector. Retail landlords are leasing mall space to coworking companies. A new retail story is beginning to be written, and the future is now.”

Pictured: The former Westside Pavilion, reimagined as One Westside.

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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