Old Malls as New Distribution Centers: A Bad Deal for Cities

Charles Warren, PhD              CityStream Solutions
Original Article Date: 12/2019

Whether you consider it to be a full-scale “retail apocalypse” or just regular old creative destruction, there are a vast number of older malls and big box centers at the end of their useful lives. There’s no shortage of ideas, suggestions, and experiments on how to transform them: coworking spaces, e-commerce distribution warehouses, call centers, or wholesale redevelopment into apartment, offices, mixed-use “town centers.” The specialists in the real estate industry all have arguments for their particular property type. But what’s the best option from the point of view of the cities making the land use decisions? Whether you’re a town, village, city, or township, how do you make the most of the opportunity that mall redevelopment presents?

Currently trending: turning old malls into warehouses and distribution nodes. On the surface, the idea seems to make some sense. Malls are huge, flat, one-story buildings that are surrounded by a lot of parking lot. Distribution centers are huge, flat, one-story buildings surrounded by a lot of parking lot. It’s a minimal transition with minimal disruption, where nothing has to feel like change. And change, we all know, can really rile up the constituents. If retail is moving from brick-and-mortar to delivery, there’s a certain seductive consistency to turning the brick-and-mortar stores of yesterday into the distribution nodes of tomorrow.

However, choosing this land use has long-term consequences that should give any city pause Let’s take a look at five major problems with this idea:

First, redeveloping as a distribution center will create a precious few new jobs – fewer than the temporary construction jobs created to build it. Distribution centers have the lowest rate of jobs per acre for any land use (unless you count the robots). The handful of jobs that are created won’t be highly paid, and it’s unlikely they will pay enough to rent anywhere nearby. Even while creating just a handful of jobs, it still manages to make housing affordability and traffic congestion slightly worse.

Speaking of traffic, distribution centers generate many more truck trips than they do employees. Office uses generate two trips per day per employee (maybe four if they have to drive to lunch and back), but distribution centers can create dozens of truck trips and hundreds of van trips every day. These drivers don’t work at or for the distribution center, but they’re adding to traffic at all hours of the day and night.

Third, the distribution center will not generate the tax revenues that financially strapped cities desperately need. (Compared to the retail sales taxes that old mall once generated, cities and counties are getting next to nothing – but those revenues are gone anyhow.) But when compared to levels of property tax and sales tax revenues that are generated by office buildings, apartments and condos, and the restaurants and retail that serve them, a distribution center makes the very lowest contribution to a city’s finances.

Fourth, keeping the wide, flat single-story building surrounded by asphalt doesn’t do a thing to help put a dent in the housing shortage. And every city has a housing shortage, because it’s part of a national problem. The best way forward for everyone is more options in housing, especially in those cities where the old malls are surrounded by single-family homes, with few choices for younger people, single people, and older people. Which brings us to the final point:

Distribution center uses are, at best, a temporary solution to the dead mall problem. These centers will be open for 10, 15, or – at best – 20 years. Technology is driving change in the retail sector and will continue to transform it. Delivery in cardboard boxes by human-guided vans is a temporary stop toward an unknown future that may include 3D printers, flying drones, and as-yet-unimaginable low-carbon solutions.

Conclusion: don’t take the deal.

If Amazon is knocking on your door, demanding incentives and promising jobs, then think about combining a distribution warehouse with other uses. It doesn’t have to be vertical (although both Vancouver and Queens have done it, and it works). There’s a lot of acreage in a dead mall, a lot of opportunity, and it’s a terrible waste to leave it on the asphalt.

New housing is the most important, and most controversial, ingredient in any mall redevelopment plan. One of the biggest reasons that housing is so unaffordable for so many is because there simply isn’t enough of it. The second biggest reason is that the housing that is legal to build takes up a lot of space, so there’s no legal way to build enough of it close enough. Authorizing townhomes, apartments, and condos where there isn’t an existing neighborhood to disrupt is a good way to both increase and broaden the local housing choices, which makes everything more affordable for everyone. Furthermore, residents make for more invested citizens than employees who commute from elsewhere, and they create less traffic with their shorter trips. Apartment buildings are worth a whole lot more than access roads and loading ramps, and they generate the property taxes to show for it. Furthermore, the residents generate sales taxes with their shopping and going out on Saturday nights.

New office development doesn’t have to take the form of tall glass towers. Innovative companies are looking for interesting architecture, open spaces that encourage interaction, many amenities for their employees, and are easy to get to (all those roads to get people to the mall are already built). Employees become the customers of the retail, supporting a solid number of restaurants, plus local convenience like pharmacies, fitness centers, and dry cleaners. Creating more employment than just a handful of warehouse jobs supports demand for the housing being built next door, because everyone likes a shorter commute (especially people who would prefer that other people wouldn’t clog their commutes). Office buildings are worth a whole lot more than the unused parking lots at the old mall, and they generate the property taxes to show for it.

A lively mix of housing, office, and retail is the best long-term decision for a city’s housing affordability, fiscal solvency, and traffic congestion. The distribution center may look easy on the surface, with minimal outward change in form. But that’s a short-sighted decision, which will not generate new tax revenues or new liveliness to attract residents and businesses. It will add to congestion, create truck traffic, and make the overall housing situation worse.

Finally, a city could actually make money by purchasing the mall from its current owner. They can get a bargain price. Dead and dying malls are a cash drain for their owners, who have to pay for a minimum of security and maintenance to keep it from falling into complete disrepair (if the owner isn’t holding up their end of that bargain, a city has a strong case for eminent domain). The city could then subdivide the mall and parking acreage, then rezone it for a mix of uses all next to each other, then sell off each parcel to an appropriate bidder. The city will come out ahead financially, with the funds to make infrastructure improvements on the roads leading to the mall.

Looking at it from a city’s perspective, the future for those aging mall properties is obvious. But among the noise of industry specialists lobbying for easy wins, NIMBY residents who fear new buildings, and local officials who search out the path of least resistance, it can be hard to see the long-term consequences. Caveat emptor – the city that plans a distribution warehouse without any other mix of uses deserves what it gets.

Comments? Contact us.