Employers on the hunt for Class A office space may not think to check out the local shopping mall, but that may be changing in the age of COVID-19.
The pandemic has battered the U.S. retail sector, driving bankruptcies and store closures to record highs.
That’s translated into some big, empty storefronts, and left real estate owners scratching their heads about how best to fill them. At two prominent Greater Hartford retail properties that are coincidentally right across the street from each other, new office space may be the desired solution.
Brokers for the owners of the Corbin Collection shopping center in West Hartford and recently shuttered Lord & Taylor store at Westfarms mall just over the border in Farmington are working to find tenants who would repurpose tens of thousands of square feet of vacant retail space into office space.
The pivot puts Greater Hartford in the center of a national trend — accelerated by the pandemic — that is reshaping the way landlords think about and use retail properties, experts say.
“E-commerce started it, but COVID really got us thinking about how much retail we actually need,” said Jason Beske, a senior planner with Virginia-based global design firm Stantec, who has studied examples of retail reuse in recent years.
The bankrupt Lord & Taylor recently closed its Westfarms store, leaving vacant a 120,000-square-foot building once considered key anchor tenant space.
Now, Canada-based Hudson Bay Co., which owns Lord & Taylor’s real estate nationwide, is marketing the property through CBRE as a high-end office redevelopment or for medical offices.
“I think the owner realized that large-scale retail stores may be a thing of the past and they are looking at this as an opportunity to repurpose it to something that would be unique in the marketplace as an office opportunity,” said Michael Puzzo, a CBRE senior vice president in Hartford, who is leading the hunt for a large office tenant at the former store.
CBRE is helping to repurpose shuttered Lord & Taylor locations in multiple states.
Hudson Bay has branded the potential office space redevelopment as the “York Factory,” with brochures showing an upscale, highly amenitized, modern office environment with an open layout, employee office pods, community space, a yoga and meditation studio and gym, among other potential perks.
Puzzo said it’s a large and rare offering in the region’s office market, where new construction is almost nonexistent.
However, York Factory will be competing with a glut of available office space in the market.
Greater Hartford’s office vacancy rate reached just over 20% at the end of 2020, the highest it’s been in over a decade, according to CBRE data.
“This is coming onto the market at a time when there are headwinds we’re dealing with, but that said, there’s nothing available in this market to this scale,” he said.
Forward-thinking tenants
The Corbin Collection is a relatively new shopping center that debuted in 2018.
New York-based Seritage Growth Properties redeveloped the site, which was the former long-time home of Sears before the retailer closed in 2017.
Overall, the shopping plaza in the Corbins Corner section of West Hartford has been successful in luring retailers such as REI, Saks OFF Fifth, Buy Buy Baby, Cost Plus World Market and Shake Shack.
It also has a Go Health Urgent Care clinic.
But 45,000 square feet of space remains unoccupied and Seritage has hired brokers from Cushman & Wakefield and SullivanHayesNE to market it as potential office or medical space, or creative lofts.
SullivanHayesNE broker Timothy McNamara said the bulk of the empty space is on the second floor, which retailers typically avoid. However, the high ceilings on that floor may prove attractive to an office tenant.
McNamara, who specializes in retail, is working alongside Cushman & Wakefield Executive Director Joel Grieco, who specializes in the office market, to land a tenant. That’s an unusual pairing, as landlords typically seek one type of tenant or the other.
“Because this space is unusual and it is in a retail environment, the landlord is trying to cast as wide a net as possible to fill the space,” McNamara said.
Grieco said co-locating office space with retail amenities is not a new trend, and that the pandemic has not played any significant role in the marketing of the property.
”Smart, well-capitalized landlords will adapt to what the market will support, and smart, forward-thinking tenants will give their employees what they want,” Grieco said.
As COVID-19 vaccines roll out and more telecommuting workers eye a return to the office, employers and workers alike are looking for new options.
“When we talk about going back to work, which is definitely going to happen, what we’re hearing from tenants nationally is they want to create an experience that doesn’t feel like the same old office space,” Grieco said.
Office space isn’t the only option retail property owners are considering as they assess how to best use their assets. Other potential uses include distribution, warehousing, storage and housing.
There have been plenty of examples around the country of shopping malls and retail centers being successfully redeveloped into mixed-use properties with housing, parks and other amenities, but often, less retail, according to Stantec’s Beske, who said the right mix can make an area more vibrant.
“A lot of communities are trying to create 18-hour cities with the whole ‘live, work, play’ concept,” he said. “Overall you get a place that has a better feel to it.”
Retail-to-office play not right for everyone
The repurposing efforts at Westfarms and the Corbin Collection may be successful, but developer Martin Kenny said he doesn’t think the strategy provides an answer for downtown Hartford’s struggling storefront spaces.
Kenny, principal of Lexington Partners and owner of numerous downtown apartment properties with ground-floor retail, said those spaces have been struggling mightily during the pandemic, as many office workers remain at home and not downtown spending money on lunch, dinner or other items during the day.
As he and his business partners — Shelbourne Global and parking magnate Alan Lazowski — pursue a major redevelopment of downtown’s Pratt Street corridor, where work on 97 new apartments is set to begin in early March, they are worried about the plan’s retail component, but certainly not abandoning it.
Kenny said he and his partners have renegotiated several retailer leases and agreed to make improvements to make the stores as attractive as possible.
“Vacancy is way up,” he said. “If the lights are on, people are struggling to pay.”
In recent years Shelbourne and other downtown landlords have tried to get creative in filling empty spaces with temporary galleries or pop-up stores. However, demand has still been limited as Hartford works to attract more feet on the street beyond just the typical 9 to 5 work day.
“What we are trying to do is create space that excites residents to be there,” Kenny said. “Part of what makes a downtown a downtown is the retail. Making that space into offices is not really what we want to do.”
Revitalizing retail and ensuring renters want to live in the city may mean landlords get more flexible about their retail asking rents and lease structures, Kenny said. Making improvements and working with desired tenants will also be key.
“We want to invest in the people who we think add a lot to the street,” he said. “So once we start renting, people will see the quality and vibe and it’ll help the apartments fill up.”
