Source: National Real Estate Investor

Simon Property Group, Inc., the largest shopping mall operator in the United States, has entered into talks with Amazon about converting unused shopping mall space into distribution centers (DCs), according to a recent report from the Wall Street Journal. With the retail sector expected to lose up to 25,000 stores in 2020, the Amazon news is only one small part of larger discussion about converting unused commercial spaces into much-needed industrial real estate. While the COVID-19 pandemic has caused retail stores and offices to shut their doors, an e-commerce boom has left the U.S. logistics sector scrambling for access to additional distribution and cold storage space.

On the surface, converting malls into DCs and warehouses seems like a great idea. Malls are conveniently located near population centers and tend to have spacious ceilings that should be well-suited to racking and material handling systems. As with any commercial property conversion, however, turning shopping mall units into DCs will not happen without overcoming some challenges.

1. Zoning

Shopping malls aren’t usually zoned for industrial use. Industrial facilities are loud and bring in a significant amount of heavy truck traffic. Zoning restrictions will vary widely at the state and local level depending on the mall’s geographic location. Convincing a planning board or city council to modify the land use permissions for a large commercial area such as a shopping mall may not be easy—especially if that mall is surrounded by residential properties. For some areas, the promise of jobs and economic stimulation may be enough to sway the decision-makers, but it’s likely that many areas will not be willing to rezone.

2. Sharing

While multi-tenant logistics facilities are nothing new, it’s rare for a distribution center to share a facility with retail tenants. The discussions between Amazon and Simon Property Group seem to be focused on occupying abandoned J.C. Penney and Sears stores. If the rest of the mall remains occupied by dozens or more retailers, new processes and planning will be required to mitigate the risk of negative business impacts.

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