Re-Imagining Retail and Industrial Spaces Amid – and After – the Pandemic

Chris Latham
Contributor

The U.S. commercial real estate sector is transforming in the face of unprecedented challenges amid the coronavirus pandemic. Property developers, building tenants, and investors all are trying to anticipate how retail and industrial spaces will evolve in design and usage.

Re-imagining viable spaces for the future may well require creating new health-focused technologies, materials, and procedures that developers and tenants will implement to attract both workers and customers. Even so, the specific types of companies that will occupy these evolved retail and industrial spaces might differ markedly from the types of businesses that dominated before the emergence of COVID-19.

RETAIL SPACES

As people weigh the risks of potentially contracting a fatal illness from each other, businesses that depend on workers and customers interacting in relatively close quarters are fighting for their survival. That’s why restaurants and brick-and-mortar stores are under the most pressure to make swift and in some cases extreme changes to their operations.

“Retail spaces will need to become more efficient. We are seeing more digital signage, beacons and RFID, and air-touch technologies being used to direct traffic, remind customers of safety practices, and increase product sales,” says Todd Dittman, Executive Director of Shop! Association, a global trade group focused on enhancing retail environments and experiences. “Building owners must also consider the ‘buy online’ and ‘pick up at store’ trend that has taken off with consumer safety concerns, so building layouts must include outside spaces that allow for curbside pickup.”

The National Restaurant Association’s list of guidelines for food-service establishments provides details on state-by-state orders around such factors as customer and employee health checks, sanitation, distancing and occupancy restrictions, and payment systems. Some common guidelines are to conduct temperature or symptom screening of everyone upon arrival, install touchless hand sanitizer dispensers at various spots, install partitions at cash registers and bars, space dining tables at least six feet apart from each other and from food preparation stations, and to reconfigure kitchens so workers can spread out.

Likewise, the National Retail Federation (NRF) publishes an Operation Open Doors Checklist for stores seeking to restart safely. Due to the multi-tenancy issue, NRF encourages store owners to gain clarity from landlords on whether each store or whether the building owner will conduct temperature and symptom screenings of workers and customers.

According to NRF, stores also should widen the walkways of high-traffic areas, maintain floor markers designating the proper distance of six feet or more between customers standing on lines, and implement contactless payment systems for customers and vendors. The checklist acknowledges that fully retrofitting some stores may make that business financially non-viable.

“Retail store fixture manufacturers, point-of-purchase producers, and retail designers all understand the pressures put on [store owners] and have been offering long-view, strategic solutions,” Dittman says. “Implementation of digital signage that allows for multiple messaging and space maximization, adaptable fixtures that can be reused for each season, and design patterns that improve the customer experience and flow are all ways retailers can address re-open checklists that satisfy both cost constraints and consumer safety.”

INDUSTRIAL SPACES

Shawn Moura, Ph.D., Research Director at NAIOP, a national commercial real estate development association, says that whereas retail spaces must contend with severe headwinds, industrial spaces will continue to enjoy tailwinds in the current landscape.

“Unlike the multiple tenants inside retail properties, industrial buildings often have a single tenant, so the property owner generally leaves decisions about usage of space to that single industrial tenant,” Moura says. “While a company like Amazon or FedEx would be able to redesign their spaces largely as they see fit, industrial tenants do seem to already be spacing people farther apart and using robots more to accommodate social distancing.”

Meanwhile, malls across the nation that have been housing faltering or failed department stores may start converting those spaces into e-commerce distribution fulfillment centers. Already  Amazon, America’s largest e-commerce company and widely seen as the main force that had been causing the decline of malls for several years prior to the pandemic, has reportedly been working on a deal to take over spaces from bankrupt retailers, such as Sears and JCPenney, in malls owned by the Simon Property Group. These multi-level department store spaces often are more than 100,000 square feet, which would give Amazon large hubs in prime locations.

Micro-fulfillment warehouses like the startup Ohi and the early-stage company Takeoff Technologies also are attempting to support the e-commerce needs of businesses like the grocer Albertsons and the Walmart subsidiary Sam’s Club. Ohi is turning smaller, non-mall spaces that once were filled with customers pushing shopping carts into spaces now filled with forklifts and conveyor belts. Ohi also has turned at least one former midtown Manhattan office space into a micro-fulfillment center.

In contrast to the heavily automated approach at Amazon, which purchased the robotics company Kiva Systems in 2012, Ohi relies on human workers to package orders. But manual labor comes with higher compensation costs, greater risk of infection, and lower productivity than machines. That may be why, as e-commerce thrives, the shipping giants FedEx and UPS are transitioning more work to robots that can quickly sort large quantities of goods and transport them around shipping facilities.

Robots active in warehouses and factories also can scan packages that are traveling on conveyor belts, or grasp and maneuver different types of items without damaging them. Some industrial robots resemble metal arms, while others are more akin to self-driving carts. The robots often contain cameras and speakers, to minimize the risk of accidents.

Other potential changes to industrial spaces include buildings with more entry and exit portals, as well as taller buildings with higher ceilings to create multi-level facilities. Both features would make it easier to move and hold more items and people, while enabling social distancing.

If even some of these moves are widely replicated, the nature of malls would change from retail-oriented spaces to industrial-oriented ones. It also might make business even harder for the restaurants and small shops at malls that traditionally benefit from department store foot traffic. There’s also the likelihood that such mixed-use spaces would further deter people from shopping in person.

As e-commerce hubs proliferate in strategic locations, consumers would find it easier to purchase a greater variety of products online that can be shipped to their door in short order — increasingly the same day. In addition, there would be fewer brick-and-mortar stores around carrying those same goods. It also may be less appealing for shoppers to visit buildings filled with warehouses they cannot enter than it is to visit malls filled with actual stores.

UNIVERSAL ADVANCES

Some advances may become universal to all types of commercial real estate in the near future, from retail and industrial spaces to even office spaces. For instance, for years prior to the onset of COVID-19, commercial real estate with LEED and WELL certifications of environmentally friendly designs were already popping up across the U.S., including at restaurants. These certifications apply to buildings that have controls for air quality, water and energy savings, as well as construction with sustainable materials.

Eco-activists see the current environment as ripe for expanding the development of such buildings, and to adhering better in practice to the sustainable operations policies that come with these certifications. Stricter enforcement would be up to the U.S. Green Building Council for LEED certification, and to the International WELL Building Institute for WELL certification.

“Re-imagining the ‘built environment’ — meaning what we build, where we build, and whether it’s safe and equitable — was already happening because of shifting demographics and social change, but it’s been accelerated by COVID-19,” says Steve Weikal, Head of Industry Relations at the MIT Center for Real Estate. “Now the industry is exploring how LEED and WELL certifications can incorporate these new health-related issues.”

One innovation that could catch on is underfloor ventilation, which has been credited for yielding higher air quality at locations including The New York Times Building and the San Francisco Federal Building. Philadelphia-based landlord Brandywine Realty Trust also modernized HVAC systems at its buildings to improve air quality years before coronavirus emerged.

The U.S. Centers for Disease Control and Prevention (CDC) released coronavirus guidelines that contain detailed precautions on workplace procedures. High on the list are improving central air filtration and increasing the physical space of furniture between workers to maintain social distancing.

In the future, both retail and industrial spaces could occupy more square footage to accommodate for greater social distancing. Electronic sensors triggering automated controls of doors and plumbing could reduce the need for touching surfaces. Robots could clean bathrooms. And building materials, such as micropattern plastics and copper alloys that prevent bacteria and viruses from clinging to surfaces, may become more popular.

“A lot of the changes that have already been put in place are not going away, and may become common, because companies are going to realize that they have unlocked better productivity and cost structures.” Weikal says.

It remains uncertain which innovations will prove permanent features of retail and industrial spaces, and which ones will turn out to be temporary solutions. Whether or not an effective coronavirus vaccine comes to market, how workers and consumers respond to building redesigns, as well as whatever new local and national public policies eventually arise, are all bound to play crucial roles. Perhaps the only certainty is that American businesses will find a way to adapt to the future of commercial real estate.