Squeezing more space out of retail
A Big Blue Swim School occupies 8,500 to 12,000 square feet and draws lots of foot traffic.
Hanging out at the mall used to mean shopping the usual assortment of chain stores and grabbing a bite to eat at the food court. These days, people making that trip to the mall can literally walk out the front door of their apartment, office or hotel and find retail shops, restaurants and entertainment along with an assortment of other amenities ranging from gyms and health clinics to community centers and casinos.
Retail is not dying on the vine because of increased competition from Amazon and other online retailers. But malls and shopping centers are finding the traditional model of relying only on retail tenants no longer works. The common theme now is repurposing, revisioning and redeveloping retail assets into more vibrant town centers. The new generation of mixed-use properties is creating new location opportunities for franchise brands across a broad spectrum of categories including food, entertainment, hotels, health and fitness, and other service businesses.
Store closures and bankruptcies from the likes of Sears, Macy’s and Toys R Us have created redevelopment opportunities in the big box stores or footprints left behind. Retail centers also are taking advantage of changes in parking requirements that have allowed landlords to carve out new development outlots and pad sites in their underutilized surface parking areas. The end result is that shopping center owners are finding new ways to squeeze more space—both retail and non-retail—onto existing properties.
“There are many retail assets that are simply obsolete today. So, I think it is absolutely the right approach for investors to be thinking about densifying sites and incorporating additional and alternative uses in that densification,” says Todd Caruso, a senior managing director in charge of leading CBRE’s retail landlord representation business. There are some obvious benefits to landlords in terms of creating higher property values, increasing revenue streams and driving foot traffic to remaining retail tenants. For tenants, the redevelopment is opening up new location opportunities, oftentimes in prime retail trade areas.
For example, Marriott International has said retail centers represented an important part of its expansion strategy in North America. The company has already opened 15 hotels at Simon-owned shopping centers. Marriott also announced last year that it would open another five over the next several years, including locations slated for Simon’s Sawgrass Mills in Florida and the Wolfchase Galleria in Memphis.
Retail redevelopment projects are popping up across the board, from major malls to small neighborhood centers. Even Walmart is embracing the trend with plans to transform select properties into pedestrian-friendly mixed-use centers with the addition of restaurants, retail and community event space.
One of the catalysts to this new trend to “densify” or expand retail centers is a change in parking requirements. Traditionally, malls were built with a ratio of 5.0 to 5.5 parking stalls per 1,000 square feet of gross leasable area, whereas today the more acceptable ratio is 4.0 per 1,000 square feet. So, in many cases, that shift allows landlords to reduce the amount of existing parking by more than 20 percent.
Big Blue Swim School
CBL Properties completed nine redevelopment projects at its shopping centers last year and has several more under construction. Projects range in size from developing a small, three-tenant building on a newly created pad site to major multi-million dollar redevelopment projects at properties such as the 1.2 million square foot Hamilton Place mall in Chattanooga, Tennessee.
The firm has been working to repurpose empty department stores, including Sears, Macy’s and Bon-Ton. However, the redevelopment is part of the firm’s broader strategy to transform its properties into suburban town centers through the addition of new uses that run the gamut from the usual mix of retail and restaurant tenants to also include hotels, fitness centers, apartments, office space and even a new casino at one property. Some of the franchise tenants CBL has worked with include Planet Fitness, Gold’s Gym, Orangetheory, Five Guys and Chop’t Creative Salad
The Hamilton Place project will add Class A office space and a new 145-room hotel along with Cheesecake Factory, Dave & Busters and other tenants.
“These properties are well located. It’s just a situation where we are needed to redevelop some of the anchors that have had their day, and the development into more mixed-use projects allow for different types of users to be a part of them,” says Michael Lebovitz, president of CBL Properties.
Franchise concepts that once found malls and shopping centers a tough nut to crack are now seeing landlords rolling out the welcome mat as they look for “Amazon proof” tenants that help to drive traffic.
“Our Gold’s Gym franchise groups are definitely all looking into these big box opportunities in malls across the U.S.,” says Ken Phipps, director of Global Franchise Development for Gold’s Gym International. “As brick-and-mortar retail stores are becoming obsolete, this space needs to be repurposed. It makes sense that owners of malls and other large shopping centers are looking for new, creative ways to appeal to their communities by welcoming tenants they may not have considered before.”
For example, Gold’s Gym franchisee Kurt Krieger opened a new 32,000-square-foot location in a former JCPenney store at CBL Properties’ York Galleria in York, Pennsylvania, in 2017.
“This was a great central location in the area, and we also already had two other Gold’s Gym locations in this market that would be complemented by this development,” says Krieger.
Gold’s Gym has since taken advantage of several similar opportunities, including a new 52,000-square-foot location that opened in a former Sears department store at the Galleria at Crystal Run in Middletown, New York, last year. For fitness centers, densification is especially useful in that it makes large spaces readily available for redevelopment, which is always preferred over new construction, adds Phipps.
“Generally, redevelopment of an existing structure is far more cost-effective than doing a ground up development,” agrees Chris Kenny, CEO of Chicago-based Big Blue Swim School. The swim school opened a location in a former Aldi store in Niles, Illinois. Its in-house real estate team is continuing to identify other opportunities in vacant retail stores as the firm ramps up its franchise expansion. The swim school has five corporate locations and plans to grow to 100 locations nationally over the next several years as it kicks off its franchise sales.
“We are a traffic generator. So, we tend to be a very sought after use by the landlord partners we work with,” says Kenny. A typical location will attract 1,700 families and 3,000 kids that are visiting the school each week for swim lessons and classes. The retail locations also are a great fit for Big Blue, which is looking for real estate that is convenient for customers
One note of caution is that even a major redevelopment is not a guaranteed fix for an obsolete or struggling mall. Franchisees still need to vet potential locations carefully and look for opportunities where there is a good merchandising strategy and strong anchors, as well as good access and visibility. Successful redevelopment projects need to take a thoughtful approach to what uses will make sense in that market, as well as creating a cohesive destination where all of the different components are integrated.