With prime locations but waning demand for brick-and-mortar retail space, mall landlords are seeking to maximize the value of their real estate with alternate uses. New England Development is seeking to add 200 apartments and office space to its CambridgeSide property. Photo courtesy of New England Development
The COVID-19 pandemic is accelerating the trend of shopping-mall owners rethinking how to reposition their properties amid the rise of e-commerce and consumers wary of venturing into enclosed retail shops and restaurants.
The repositioning of retail shopping centers – both enclosed and strip malls – was already well under way before the coronavirus pandemic hit last winter, as consumers increasingly purchased items online rather than trekking to brick-and-mortar retail stores.
Combined with the “live, work, play” trend of people wanting to be in urban settings, shopping malls across the region and nationwide, particularly those in rural and some suburban areas, were taking it on the chin and reacting by redeveloping sites into mixed-used retail/office/housing complexes.
Then along came COVID-19, lockdowns, social-distancing rules and millions of Americans hunkering in their homes ordering food and household items online – and the repositioning trend has only intensified, according to industry experts.
“I view the pandemic as an accelerator event,” says Jeff Arsenault, a principal at Avison Young Global. “In the case of COVID-19, it’s merely speeding up the demise of some [retail centers] that were already struggling.”
New Sense of Urgency
Not every repositioning move today is directly tied to the pandemic. But the timing of some recent moves – coming as the battered state and national economies try to recover from last spring’s commercial lockdowns – adds to a sense of urgency, even desperation.
Last month, Kayne Anderson Capital Advisors, a Florida private equity firm specializing in senior care homes and medical offices, swooped in to buy a large slice of the struggling Auburn Mall for $50 million.
In August, New England Development announced plans to add 204 apartments at the Bunker Hill Mall in Charlestown, creating a mixed-used complex that complements the site’s existing tenants, including anchor tenant Whole Foods Market.
Also in August, the Grossman Cos. confirmed it plans to redevelop 1690 Revere Beach Parkway in Everett, where a Stop & Shop Supermarket now stands, into 800 apartment units and 15,000 square feet of newly built retail space.
In addition, executives at both New England Development and Grossman Cos. say they have either set or very tentative repositioning plans for other properties.
Retailers’ preference for “shopfront” locations, as at the Patriot Place mall, and separate pad sites may have increased due to the pandemic, but even some online retail brands see value in a brick-and-mortar retail presence, experts say.
Galleria Seeks to Add Office Space
Douglass Karp, president of New England Development, said his firm is pushing ahead with its proposed redevelopment of its CambridgeSide property, with plans to reduce the site’s retail footprint, add third-floor offices and construct 200 new apartment units. The project, which was proposed well before the pandemic, recently received necessary zoning changes but still needs building permits.
It’s all about providing a more vibrant live-work-play feel to CambridgeSide, said Karp.
“It’s a great location,” he said. “It’s going to have a very bright future moving forward.”
No construction start date has been set, but New England Development is hoping to have permits in hand by the end of the year or next year, Karp said.
Jake Grossman, president of the Grossman Cos., said he sees his firm possibly repositioning the 860-880 block of Commonwealth Ave. in the heart of the Boston University campus. Grossman Cos. has owned half of the block for 30 years, but bought the second half in the past year. The block now houses Target, Starbucks, a bank and an Amazon Hub package pickup facility.
Grossman said he also is considering changes at the firm’s Granite Place, in Quincy center, and its Hannaford’s site at 55 Russell St. in Waltham.
He emphasized Grossman Cos. has no firm plans to reposition the sites, and indicated the company is in no hurry to make changes. But he said all retail property owners are reassessing their properties amid market pressures and rapid changes in consumers’ wants and needs.
Prime Locations Provide Security
Both Grossman and New England Development’s Karp said their properties are in great locations, so they’re confident the sites will remain vibrant, as long as they stay open to new ideas and keep up with market trends.
Ted Chryssicas, an executive managing director at Newmark Knight Frank, agrees that many shopping mall centers, even if they’re currently struggling due to today’s tough retail climate, are still valuable properties because they were built near highways, transit stops and other convenient locations.
He said the retail sector is clearly going through rough times, particularly major department stores in enclosed malls. But smaller savvy retailers and restaurant companies are still scouting out conveniently located sites, even during the pandemic.
He noted that if shopping-mall sites have so-called “pads” – or separately standing buildings – with outdoor spaces for seating, restaurant chains are interested in such sites. He also noted retailers are increasingly insisting on “streetfront entrances” at shopping centers, so shoppers can avoid walking through large enclosed areas to get to stores.
Chryssicas declined to name companies, but he said he knows of some New York restaurant-chain investors who are currently scouting out sites in the Boston area.
Meanwhile, so-called “direct-to-consumers” (DTC) firms, or retail companies that sell mostly online, are interested in opening up a limited number of brick-and-mortar outlets for branding purposes and are also looking for sites.
“Bricks-and-mortar retail is not dead,” Chryssicas said. “If a site is in a good location, some people will jump on it if the price is right.”
Avison Young’s Arsenault agrees that physical retail sites will always be around, but owners of large retail properties need to be flexible and imaginative. Many empty retail spaces have recently been filled with medical offices, gyms, wellness centers, restaurants and other businesses previously not considered classic mall tenants.
Arsenault said the pandemic is merely forcing mall owners to be even more imaginative, he said.
“Many of these places are positioned well because they were built off highways and near transit-friendly sites and they’re very accessible,” he said. “There’s still a future for them.”
