Vacant retail spaces get creative re-use
People walk by an empty retail space for rent on Madison Avenue in New York.
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Kai Ryssdal: Three big box retailers reported quarterly earnings today. There were losses of varying sizes at Target, Office Depot and Home Depot. Let's not forget Circuit City, either. The bankrupt electronics chain is in the process of closing down more than 500 of its stores nationwide. All those troubles in retail are leaving property owners with a lot of vacant big boxes to fill.
And Tamara Keith reports that could lead to some creative re-uses.
TAMARA KEITH: About a year ago the CompUSA store in Gaithersburg, Md., shut its doors for good. That was bad news for Gene Carlin at Danac Corporation. That's the real estate development company that owns the vacant 30,000-square-foot building.
GENE CARLIN: We were concerned. We went through several prospective new tenants: Office Depots, Staples, people like that, Golds Gym that were trying to look and see if they would take over the lease, but none of them came to fruition.
But this isn't a tale of vacant retail blight.
DR. ERIC BOSHOVEN: That dog has been barking all morning.
Dr. Eric Boshoven is a radiation oncologist at VCA Veterinary Referral Associates. The vet hospital provides specialty care, neurology, surgery and oncology. And it's bursting at the seams.
Dr. Boshoven: We absolutely, we're running into people constantly in this facility. We're on top of each other all the time.
Dr. Boshoven was shopping at the going-out-of-business sale at the nearby CompUSA when one of those eureka lights went off in his head.
Dr. BOSHOVEN: I saw that they were going out of business and so I started asking the manager, "What are you doing with this building when you're done?" They didn't know but they put me on to the real estate company that was in charge of the building.
Work is now underway to convert the old CompUSA into a high end veterinary specialty hospital. VCA is scheduled to move in this June. Property manager Gene Carlin didn't know much about the veterinary business when this all got started. But he sure does now -- and he's thrilled to have a long-term lease. And with the current economy, he figures his firm won't be the only one thinking outside of the retail box.
GENE CARLIN: You're going to see people have different uses that come into box stores that normally you wouldn't consider 2 years ago. Two years ago there would have been somebody to backfill CompUSA right away and there probably would have been competition to get the store.
In 2008 there were 176 million square feet of vacant space in strip centers. And it's getting worse. According projections from commercial real estate firm Cushman and Wakefield, and industry observer Reis Inc., that figure will jump by 20 percent by the end of this year, leaving more than 7.5 square miles of vacant store fronts nationwide.
Mike Williams teaches real estate at Portland State University. He says it's not just the owners of these strip malls that are hurting, neighborhoods are suffering too.
MIKE WILLIAMS: I do think it does have an effect on people. If there's a vacancy in retail, you see it.
There's nothing like a big empty store to remind shoppers that there's a recession. But Williams says a vet hospital might not be the best substitute for destination retailers like Circuit City or Linens 'N Things.
WILLIAMS: If you're in a larger center with other anchors, you're going to be more worried about the overall mix of the center and you'd want to make sure: Is this a complimentary use to the other uses? Is this a complimentary tenant?
If the recession drags on though, Williams says property owners will become increasingly receptive to creative re-use -- things like churches, call centers and even animal hospitals.
I'm Tamara Keith for Marketplace.