If you ask 10 real estate professionals about the future of retail real estate, you’ll get 10 different answers (maybe 12 if some brokers are in that group). The answer seems to be—flexibility and vision. The following article, “The New Mall Tenant Is Your Office,” which recently appeared in The New York Times, demonstrates yet another adaptation—the incorporation of office space into retail developments, or even in full replacement of retail uses. This dovetails with the work-play-live trends and the flex-space trends that I covered in two articles last year.
One word of caution: old retail leases often prohibit office uses, so those prohibitions need to be addressed.
The New Mall Tenant Is Your Office
By Tom Acitelli, April 30, 2019
As retailers close, developers are converting the space into offices to bring in stable rent and generate foot traffic for remaining stores.
Westside Pavilion, a dying mall in Los Angeles, ticked all of the boxes for Hudson Pacific Properties.
The Los Angeles-based developer was looking for an urban site with big floor plates and exceptionally high ceilings to redevelop into what it called “state-of-the-art creative office space” for future tenants. The company also wanted a central location near mass transit and major highways, in one of the handful of West Coast cities where it usually builds.
Then, as Hudson Pacific started planning to outfit the mall, along came Google, a Hudson Pacific tenant elsewhere in the city. “The stars kind of aligned,” said Alexander Vouvalides, the developer’s chief investment officer.
The old mall would become new office space. The 584,000-square-foot Google complex, to be called One Westside, is projected to be finished in 2022 at a cost of up to $410 million.
The Westside Pavilion redevelopment is one of the latest examples of a nationwide trend in commercial real estate: the conversion of malls into office space. Offices are less risky than retailers, and in some cases they can generate foot traffic for the mall’s remaining stores and restaurants.
The biggest beneficiaries of the conversions are co-working enterprises, like WeWork, which provide shared work spaces primarily to entrepreneurs, freelancers and start-ups. The highest concentration of co-working spaces in retail nationally is in malls, according to an August study by the global property company Jones Lang LaSalle. The same study predicted that co-working space in retail in general would grow at an annual rate of 25 percent through 2023.