Extra Space Storage Setting Up Shop in Vacated Retail Building Amid Growing Trend
By Lou Hirsh CoStar News August 19, 2020 | 9:06 P.M.
The basement of a vacated former Sears store in the San Diego area is poised to become an Extra Space self-storage facility, among the latest examples in a national trend of former big-box spaces being converted into other commercial uses.
Property owner Seritage Growth Properties has received city approvals to convert the former Sears’ 70,475-square-foot basement in the eastern San Diego suburb of El Cajon, California, into self-storage units. Extra Space Storage plans to operate the facility.
“You’re seeing this more and more in many states, where the storage companies are using retail spaces like former Kmart and Toys R Us stores,” Tom Berlin, a Detroit-based associate with commercial real estate brokerage Marcus & Millichap, told CoStar News. “U-Haul in particular has been doing this in a lot of secondary and tertiary markets.”
Large big-box retail spaces have been increasingly going dark across the United States for years as more people shop online. The coronavirus pandemic has sparked a wave of major retailers going out of business or seeking bankruptcy protection and accelerated the closing of big-box brick-and-mortar spaces. Landlords, developers and public and private officials nationwide are increasingly exploring using the space for industries entirely unrelated to retail such as healthcare, coworking and storage.
In a forecast report this year, prior to the coronavirus pandemic, Marcus & Millichap estimated that more than 8 million square feet of vacated big-box retail space across as many as 50 U.S. markets was expected to be converted into self-storage by the end of 2020.
The storage companies like the concept because it minimizes construction costs for setting up new locations, and communities tend to allow them because the projects generate less overall vehicle traffic than the stores they replaced.
“You’re taking what was an abandoned property that may have been empty for a long time and not generating anything in the way of taxes, and creating a relatively unobtrusive new use,” said Berlin, who specializes in self-storage properties but is not involved with the El Cajon project.
He added the self-storage industry has generally been hungry to build out using several types of vacated commercial properties, noting that in Michigan, for instance, self-storage is often the newest tenant or owner of vacated hotels, offices and industrial buildings. Self-storage is also increasingly adapting to multi-story formats after years of focusing on single-floor locations.
“With self-storage, it’s no longer the image of a plain industrial building surrounded by barbed wire,” McKall Morris, spokeswoman for Salt Lake City-based Extra Space Storage, told CoStar News. “We’re looking to put these into innovative and interesting places that have more of a retail feel in locations that make sense to the customers.”
The El Cajon retail basement location is expected to open in the second or third quarter of 2021, with between 560 and 570 rentable units.
Morris said other types of commercial buildings may also fit the bill as Extra Space looks to add to its current 1,800 U.S. locations, similar to the former airport hangar where the company recently opened a Denver branch.
The 250,000-square-foot Sears building at the Westfield Parkway Plaza mall in El Cajon originally opened in 1969 but closed in 2018 as part of a larger wave of closings by the struggling Sears Holdings company. According to CoStar and broker data, building owner Seritage has since leased most of the large building to three other retailers that now occupy the site: Ashley Furniture, Bob’s Discount Furniture and Burlington Coat Factory.
Officials of New York-based Seritage, a real estate investment trust in the midst of several conversions of former Sears and Kmart stores nationwide, did not immediately respond to a request for comment.
According to a city staff report, repurposing the El Cajon Sears basement posed a challenge for Seritage because it was previously used primarily for shipping and storage and includes loading docks and other elements never accessed by the public on a regular basis.
The space is planned to be reconfigured so that customers can access the basement storage units using elevators that will be accessible from a ground-floor office. Moving companies are meant to still be able to use docks and an existing freight elevator to move larger items. Under a development agreement with the city, Seritage is expected to pay a sales tax offset of $12,000 annually for 10 years.
Marcus & Millichap’s Berlin said the concept of converting other types of commercial spaces into self-storage has been around since at least the 1970s but has particularly gained momentum during the past 15 years in the United States.
Berlin said it’s too soon to tell whether the coronavirus pandemic will raise demand for self-storage. It could happen if, for instance, apartment evictions create higher need for temporary interim storage space.
But the self-storage property sector has generally held up well across most types of national economies.
Developers evaluate very specific local population and demographic factors to decide whether a retail or other commercial property makes a good location for a new storage center. The average customer uses between 6 and 7 square feet of space and prefers not to drive more than 5 miles to get to a self-storage facility.
“You have to tailor these projects to the actual demand in a given market,” Berlin said.
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