The explosive growth of online shopping ignited by the Coronavirus also is speeding up the trend of shopping malls and large retail spaces being converted into warehouses and distribution centers.

Investors and developers are looking to conversions in a bid to take advantage of the higher returns and strong rental growth of the logistics sector, reports the industrial real estate giant JLL.

“Major retail landlords are already evolving their strategy to maximize asset values through the integration of alternative uses, including hotels, office and residential,” says Stuart Taylor, senior director of retail investments for JLL.

“The integration of logistics uses in certain large-format retail assets, or complete conversion of these assets, is a logical next step and is driving new capital sources to the retail sector that is increasingly focused on alternative use potential.”

In the United States, there is an enormous amount of retail space per person compared to other countries. A looser planning system has led to an oversupply of retail buildings, and many defunct malls have converted to industrial, JLL points out.

Most large-format malls, which are typically tenanted by heavy home goods stores, are favored because they are located within densely populated metropolitan areas, close to large logistics hubs.

“This is practical for supporting not just rapid delivery, but also the high return rates associated with online purchases,” the company points out.

The same trend is occurring in the UK and Australia. Andrew Quillfeldt, JLL head of retail research, Australia, observes that large-format retail assets physical characteristics, such as location and load bearing capacity, make conversions more feasible than with enclosed shopping centers.