5Qs for Steve Backman on merging DCs with shopping centers
As a development chief for Van Trust and Rouse, Steve Backman has overseen the delivery of more than 6 million sq. ft. of industrial space. That sector of commercial real estate has never meant much to retail tenants in shopping centers, but now it does. Shuttered big boxes—or even large department stores—are becoming the new homes of distribution centers. Steve has since co-founded BH DevCo, a real estate development company for national tenants in the e-commerce distribution and delivery space, and we asked him what the pros and cons were for retail tenants
Why do builders of distribution centers now want to locate in shopping centers?
For the same reason that shopping center developers did--proximity to rooftops and shoppers. A project that was once a great retail center, but that is no longer viable for any number of reasons, has created an opportunity for last-mile distribution of merchandise bought online. Last-mile users are focused on the same fundamentals, only the process is in reverse. Instead of how quickly a customer can get to retail, it’s how quickly the retail can get to the customer.
What else are these last-mile DCs looking for?
Not every old big box or retail site is a viable last-mile location. Last-mile deliverers want bifurcated parking and access. They do not want cross-traffic or shared parking. A stand-alone box like a Kmart Center in a great location could be ideal. And if the DC is incorporated in an operating shopping center, it needs to be an endcap or anchor with its own access and parking. There is a push and pull between what the owners want, what the municipality wants, and what the last-mile users want.
Is there any reason retail tenants in center should welcome DCs?
The last-mile user is a strong tenant and fills an empty space that can be hard to fill with another retailer. Distribution centers can be architecturally discreet and attractive. Having that space filled can then allow the center owner to reinvest capital back into the property.
Doesn’t a DC in a shopping center mess with its image?
This is really a case by case situation. These users are often going into areas or centers with a highly public process that may dictate that in order to have back-of-house industrial they need to have front-of-house storefront retail, a showroom, and pickups or returns. Think of tasting rooms in front of brewery or a company store at an industrial bakery. We are not seeing a lot of that yet, but we anticipate it as last-mile users move into more dense areas..
How many DC operators are inspecting retail sites?
It’s scaling very quickly. There are a lot of active deals all over the country today. We are seeing exponential changes every quarter. Delivery is changing from one week to three-day to one-day to same-day delivery. When the leader in the industry goes from two days to one day, everyone else is going to try to catch up. That is going to create opportunity all around.