Big-box retailers are leaning away from big-box spaces, and experts say that’s pushed Birmingham area property owners to think outside the big box to find new tenants.
Since the recession, when several large retailers closed in the area, real estate professionals say they’ve seen a surge in creative reuse – when space is used for something other than it was originally intended.
That’s lowered vacancy rates and reduced the number of blighted properties in metro Birmingham and could foreshadow a rash of new big-box construction projects, said Retail Specialists Inc. President Robert Jolly.
But, he added, the trend is also driving rents down, costing local governments sales tax revenues and leaving shopping centers without their anchor stores.
“I think (the trend) is a blessing and a curse,” Jolly said. “It’s causing anxiety and desperation for property owners.”
Even though several large retailers have pulled out of the area, the vacancy rate for the metro’s 35 big-box spaces, which have a combined square footage of nearly 4.5 million, was at 5.4 percent at the end of 2011, according to real estate research firm Xceligent’s latest report.
Cushman & Wakefield’s Cushman & Wakefield Latest from The Business Journals Follow this company fourth quarter 2011 Birmingham retail real estate report said that rate has remained flat in recent years, despite the loss of major retail.
In metro Birmingham, big-box spaces that have been renovated for creative reuse include the former Bruno’s grocery store on Montclair Road, now an iStore Self Storage; the former Mazer store in Homewood, set to become a Pep Boys Pep Boys Latest from The Business Journals Follow this company franchise location; and the former Bruno’s on U.S. 31, now Hoover Tactical Firearms.
The large empty spaces and discount leases are also attracting thrift stores, which has led to several tiffs lately. The Jimmy Hale Mission recently lost a bid to move into a former Food World Food World Latest from The Business Journals Follow this company in Vestavia Hills Plaza and Trussville signed an expensive lease for a former Main Street Food World to keep America’s Thrift Store from taking the space.
But as big retailers begin to grow with the economy, The Shopping Center Group’s The Shopping Center Group Latest from The Business Journals Follow this company Will Akin said, they’ll find they’re late to the party.
“They were just sitting and waiting on the economy to improve, and while they were waiting, the existing cheaper big-box spaces were all taken,” Akin said. “Now, they’re going to be forced to go in and do ground-up construction.”
Mickey Gee, retail market expert and professor at the University of Alabama at Birmingham University of Alabama at Birmingham Latest from The Business Journals Follow this company , said the trend could hurt some retailers in the long run as local governments try to make up the lost sales tax revenue.
But, he continued, creative reuse is sometimes an easy out for landlords when the market is depressed and tenants are few.
“Retailers are going to find the best and brightest use for locations,” said Gee, who also co-owns the Pants Store.
The creative-reuse trend hasn’t been limited to retail stores. The Church of the Highlands recently purchased the 50,750-square-foot former headquarters of AIG Baker Shopping Center Properties in Lee Branch out of foreclosure for more than $4 million from BBVA Compass, which was represented by Graham & Co.’s Dan Lovell, Walter Brown and Sam Carroll.
Carroll said there has recently been a “ton” of creative reuse deals in the area.
“Once these properties sit there,” he said, “there (aren’t many) options but to change the use.”
Brown said the trend is partly being driven by big retailers like Target Target Latest from The Business Journals Follow this company and Walmart Walmart Latest from The Business Journals Follow this company , which are changing up their store concepts.
“I think it’s just an overall trend of people trying to be creative with real estate out of necessity and because values are down,” he said. “It opens the door.”
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