Landlords Finding New Uses for Big Box

Recent figures from CB Richard Ellis' Tucson office show 19 million square feet of gross rentable area, with a vacancy standing at 9.4%. Availability rate stands at 10.4%, with about a half a million square feet under construction.

Though Tucson isn't facing the glut of retail space that northern neighbor Phoenix is, it's starting to dawn on owners that something needs to be done, especially when it comes to the big boxes that formerly housed retailers such as Linens 'n Things and Circuit City. "Landlords are slowly coming to the realization that they have to be as innovative and out-of-the-box as they can," comments Scott Soelter, vice president with Grubb & Ellis Co.'s Tucson office.

One such way in which some owners are trying to fill the empty big boxes, at least on a short-term basis is through temporary tenants, which take down space in a period of months, rather than years. But temporary tenants are not a panacea. The owner needs to go into such an arrangement with eyes wide open.

For one thing, the temporary tenant needs to be willing to vacate in the event a permanent tenant might want the space. Additionally, "when you're working with temporary tenants, they tend to bolt after the lease is up, so you don't want to be left with a place that has a $1,000 worth of clean up," says Nancy McClure first vice president with CB Richard Ellis' Tucson office. "You want to get the bulk of the rent paid up front, so you're not trying to track down the tenants when they're gone."

Soelter comments that adaptive re-use, which could include slicing up a big box into smaller spaces for smaller tenants, is also an important tool for owners. "In a lot of cases, the concept of the one-tenant, big-box user is gone," he goes on to say. Furthermore, "if you can find the adaptive use that leaves the retail sector and goes into a larger office format or public sector use, it's important to reach for that idea."

McClure points out, for example, that she recently leased 17,000 square feet of vacant space to a branch library that needed to relocate temporarily while upgrade work was done on the permanent branch. The landlord was pleased to get the tenant into the building, rather than allow it to sit vacant. And the library was happy, too, that it wasn't stuck with a long-term lease.

McClure goes on to say that she is also hearing about charter schools and technical trade schools that want larger spaces. Though not retail, these are tenant types that landlords could possibly approach to backfill space.

"Tucson really hasn't had an excess of large spaces available until recently. Most of the time, we don't agree to accommodate those uses, especially when there's a greater chance of finding a permanent tenant," McClure explains. "But given the current market conditions, these companies provide a stop-gap between getting a full-time tenants and having the space sit vacant."

Furthermore, Soelter explains there is a small, golden nugget in the excess retail space dilemma, namely that it could provide for some new types of tenants. "The really good news, if you can look back on this historically, is the situation now causing all the angst will really be fertile ground for new retail concepts," he says. "Companies will evolve and will end up backfilling what is now obsolete real estate."