Limited scope for retail-to-logistics conversions: Prologis

Logistics specialist Prologis claims that there will be limited scope for converting redundant and underperforming retail property to logistics space to satisfy growing demand from e-commerce. The company estimates that conversions might account for less than 1% of stock.

Prologis said the Covid 19 pandemic has put intense pressure on the retail sector having “conflated more than five years of evolution in the retail real estate landscape into less than five months.”

Photo: Bruce Williamson, Unsplash.

The firm acknowledges that the sharp rise in online spending during lockdowns. And it says this has put pressure on landlords in the sector to consider conversion of their properties to e-commerce warehouses, “to meet spiralling demand for high quality and infill logistics space, particularly in the ‘last mile’ distribution areas of urban conurbations.”

However, in a research paper, Logistics Real Estate – Sizing the Retail Conversion Opportunity, the firm said retail-to-logistics conversions are complex and face economic, political, physical and legal obstacles, so are expected to take a long time to evolve.

Prologis estimates retail-to-logistics conversions in the US will total 77,000 million sq ft (7,100 million sq m) of new logistics space over the next decade, or 8 million sq ft per year. It added that total logistics stock in Prologis’ US markets is expected to rise to 10 billion sq ft by 2030, thus retail-to-logistics conversions would account for less than 1%.

Conversions are likely to be most pronounced in among US malls, but as this is a modest sized overall category, it will not translate to significant new logistics supply.

Smaller retail formats are more common, but the rate of potential conversions among smaller formats will likely be significantly lower, the report states.

Source: Prologis.

The report focuses on the US market but Prologis points out that the trends identified are also likely to occur across Europe to varying degrees. But the firm emphasised that there are key differences between the US and European retail landscapes.

Vice president research and strategy Dirk Sosef said: “Europe has a higher number of high streets in historic city centers and fewer troubled pan-regional retailers such as JC Penny or Sears in the US.”

Opportunities for conversion will emerge, but will vary widely by retail format, center sizes and market.