Secondary reuse for warehouses: Malls as warehouses

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  Quantumrun Foresight
• August 21, 2023

Insight highlights

Repurposing malls as distribution centers allows businesses to establish efficient last-mile delivery networks and improve customer satisfaction. Optimizing existing infrastructure reduces the need for new construction and stimulates local economies, fostering resilience and agility. Wider implications include the need for alternative community spaces, zoning regulations and urban planning adjustments, and opportunities for real estate developers and startups offering warehouse-as-service solutions.

Secondary reuse of warehouses context

Traditional warehouse space is currently in short supply, but secondary-use sites, such as malls, offer appealing locations and flexibility for supply chain specialists. Available logistics warehouse space has been declining since 2016, with vacancy rates dropping from 8 percent to 4 percent by 2022, according to warehouse landlord Prologis. As the average warehouse rent increased to nearly USD $9 per square foot in the last quarter of 2022, companies are looking for alternative storage options. 

As the shift from offline to online shopping continues to accelerate, Coresight Research predicts that approximately 25 percent of American malls will close down by 2025 to prioritize online sales. As such, brick-and-mortar retailers are converting their closed stores and repurposing existing retail spaces into distribution centers. Shopping malls in affluent regions and densely populated areas can be repositioned by incorporating additional delivery and pickup services. In locations where land availability is limited, retailers may likely look for warehouse space within former shopping malls close to residential communities.

Retrofitting malls and strip malls into warehouses, as Fillogic does, can provide storage or fulfillment centers without needing connected space. For example, Amazon is taking over Ohio's Randall Park Mall due to its large size and proximity to infrastructure and consumers. Modular warehouses, such as those offered by Dockzilla, can be assembled in previously unused areas like strip malls and parking lots. 

Disruptive impact

One of the critical implications of repurposing malls as distribution centers is the transformation of the retail landscape. By repurposing physical stores as warehouses, businesses can capitalize on their existing infrastructure and central locations to establish efficient last-mile delivery networks. This strategy enables faster order fulfillment, reduced shipping costs, and improved customer satisfaction.

While some retail jobs may be lost due to the decline of traditional stores, new employment opportunities can emerge in the logistics sector. The conversion of malls into distribution centers requires skilled workers for inventory management, order processing, and delivery logistics. Governments, businesses, and educational institutions need to collaborate to identify and provide relevant training programs to equip the workforce with the skills required for these emerging roles.

Moreover, by optimizing existing infrastructure, businesses can reduce the need for new construction, leading to cost savings. Local economies can also benefit from the increased activity generated by these centers, as they attract investments and create job opportunities. These developments can contribute to a more resilient and agile business ecosystem.

Companies can also offer conversion services that would accelerate the adoption of warehouse-as-a-service. This business model can comprise co-warehousing, which offers multiple businesses one building as a communal warehouse. This strategy enables smaller businesses to save money while having access to the infrastructure and technologies that would allow them to scale up.

Implications of the secondary reuse of warehouses

Wider implications of the secondary reuse of warehouses may include: 

• The loss of places for socialization as more malls are repurposed into distribution centers. Alternative community spaces and recreational areas may need to be developed.
• Local governments reviewing zoning regulations to accommodate the changing use of commercial spaces, ensuring they align with the needs of the logistics sector.
• Adjustments to urban planning strategies to optimize transportation infrastructure and support efficient logistics operations inside suburban and urban environments.
• Increased adoption of advanced technologies inside these converted malls, such as electrification, automation, and robotics, to improve operational efficiency and reduce costs.
• New market opportunities for real estate developers and construction firms.
• More sustainable logistics practices as empty spaces are repurposed and co-warehousing reduces energy consumption.
• The rise of mixed-use neighborhoods and compact cities, where everything is within walking distance, reducing carbon emissions.
• Startups focusing on warehouse-as-service solutions to capitalize on commercial real estate closures.

Questions to consider

• If you work in logistics and distribution, how is your company repurposing commercial spaces as warehouses?
• What are the other benefits and challenges of repurposing empty malls into distribution centers?