Shopping malls have struggled mightily during the COVID-19 pandemic, leading property owners to come up with alternative uses to generate some sort of revenue stream. For example, global real estate management and development company Brookfield Properties recently leased space at 73 mall properties to Collection Sites to use as COVID-19 “pop up” testing sites. Childcare facilities and healthcare clinics have been other creative alternative uses for vacant mall properties amid the pandemic.
Meanwhile, the idea of converting vacant shopping malls into distribution centers for online retail orders has circulated around the industry for a while, but it has mainly remained a theory until recently. Brookfield has stepped up and announced its property management group, Brookfield Property Partners will attempt to secure some of the online sales revenue that came from its physical mall locations in its portfolio, Bisnow reports.
Brookfield proposed two ways to get a piece of the expanding online sales revenue during the company’s 2020 full-year results announcement. One option will be to turn parts of Brookfield’s 121-mall portfolio into mini distribution centers that its tenants could rent out to handle online orders. Such a conversion would allow Brookfield to generate revenue from what’s currently a difficult space to lease.
“If you actually look at where rents on last-mile distribution facilities on—in inner city locations relative to our typical retail rents, the delta is not that great anymore,” Brookfield CEO and Managing Partner Brian Kingston said during the results call when asked about the cost of creating distribution centers in malls. “What that means is, when these retailers are looking at putting shared fulfillment centers or taking additional space within a shopping center for this fulfillment through One Channel (what Brookfield calls retailers combining online with traditional retail). The rents we’re able to achieve are pretty close to what we’ve been achieving. There’s not a dramatic change.
“Oftentimes for these fulfillment centers, they’re in I’ll say the lower value ends of the malls whether that’s an old department store box or otherwise it was not your prime customer-facing areas of the mall. And so being able to utilize those underutilized areas is actually accretive. So from our perspective, the economics of putting this shared fulfillment or evolving our centers to be more directly facing on One Channel is net positive economic on the rents.”
Brookfield’s other option for grabbing a slice of the e-commerce revenue pie is seeing retailers fulfill more of their online orders from their store locations instead of a special warehouse or logistics property. In his fourth quarter letter to Brookfield unit holders, Kingston noted that Dick’s Sporting Goods had recently reported that its stores fulfilled 70% of their online sales and contributed 90% of their quarterly sales growth. He also pointed out that Consumer use of Buy Online Pickup In Store (BOPIS) had grown approximately 500% since the beginning of the COVID-19 pandemic.
“The proliferation of One Channel commerce centered around using the store as not only a point-of-sale, but also a distribution and returns center continues to benefit our mall fleet,” Kingston wrote. “While the showroom area of the store may shrink, retailers are using more space for inventor, returns and fulfillment, making the distribution channel itself less relevant, but the location of its physical real estate more important than ever. Retailers have quickly realized that overall sales volume can benefit from wider profit margins when optimizing a One Channel strategy.”
Joe Dyton can be reached at joed@fifthgenmedia.com.
