Another prominent Los Angeles mall is hoping a creative office conversion can solve some of its vacancy problems. It’s the latest sign that traditional mall operators are re-envisioning their properties’ futures as they adapt to a changing retail environment driven largely by online shopping and experiential brands.
The San Fernando Valley’s Northridge Fashion Center could see 45,000 square feet of retail space on its third floor turned into creative office if it’s successful in its efforts to land an office tenant.
One of the largest mall owners in the country – GGP Inc., formerly known as General Growth Properties – owns the 47-year-old, 1 million-square-foot mall at 9301 Tampa Ave. in Northridge, CA. It has had about 90,000 square feet of vacancy on the third floor since the 6.7-magnitude Northridge earthquake in 1994 that shook large stretches of this part of the west valley to the ground.
Entertainment-restaurant venue Dave & Buster’s Inc. and restaurant Wood Ranch Barbecue and Grill leased about half of the vacant space in the last year. Now, GGP is seeking up to two office users to fill in the rest of the space.
The publicly-traded mall operator has office space in an adjacent tower of its sister mall project, the Glendale Galleria. It approached the Glendale office of Charles Dunn Co. Inc., which lists that space, about creating offices for its Northridge mall.
After a successful feasibility study, Charles Dunn brokers Lauren Nesmith and Todd Wuschnig began marketing the space to creative office space users last week.
Nesmith said they’ve already received inquiries from an insurance company as well as a health and wellness related firm interested in touring the space.
“I see an opportunity for maybe media and tech, maybe even an e-commerce support center,” Nesmith said.
The announcement comes only months after real estate investment trust Macerich Co. revealed it teamed up with office developer Hudson Pacific Properties Inc. to convert West L.A.’s struggling Westside Pavilion mall into a creative office complex.
The conversion of mall space from retail to alternative uses is trending across the country. More experiential uses such as medical space, health and wellness facilities, or food and beverage-related companies have been filling in mall vacancies and department store boxes.
Office is a somewhat newer emerging trend for malls, especially in L.A.
“Retail into office is pretty unusual until recently,” said Stephen Basham, a senior market analyst covering the Southern California region for CoStar Market Analytics. “Of course, you’ve had a ton of industrial-to-office conversion. Repurposing retail space has been more challenging though.”
Outside of a few specific types of tenants such as gyms, activity centers or churches, there haven’t been many clear candidates to fill big-box type stores that major retailers have been exiting, he added.
Macerich and Hudson Pacific Properties plan to convert the Westside Pavilion almost entirely into creative offices, leaving just 100,000 square feet of retail space on the ground floor. The project is a major undertaking that could be value the property at as much as $475 million, according to Hudson Pacific.
But some wonder whether it could be the new answer for struggling retail landlords. With centralized amenities such as food courts and shops, malls could be attractive place for certain types of office tenants too.
“It’s a great way for the landlord of these larger assets to repurpose the space and take advantage of it,” Nesmith said. “Tenants and employees love being in a mall. They love the convenience that that provides. So it’s synergistic placement for a new tenant.”
The market appears to be eager for more creative offices. A nearby San Fernando Valley industrial site converted into creative offices at 8500 Balboa Blvd. has leased up 40,000 square feet in the last few months, Nesmith said.
“Other competing offices that have over 25,000 square feet of contiguous space aren’t moving like the creative space,” she said.
The office market in general is tightening in the west valley region, which peaked at 20 percent office vacancy during the recession. In recent years it has been posting positive net absorption as it recovers. Last year, it had more than 130,000 square feet of positive net absorption, helping push vacancies to 11 percent, according to CoStar research.
What’s more, this part of the San Fernando Valley hasn’t seen the creative office explosion that other parts of Los Angeles have experienced, making this type of environment lower in supply and quicker to get snapped up, Nesmith added.
For a mall owner, an office user could be a more desirable tenant than even a more experientially-focused tenant like a spa because their success isn’t as reliant on discretionary income that could dry up during a future recession.
“Owners can convert surplus retail space to office for similar rent,” said Michael Lagazo, vice president at SRS Real Estate Partners, who focuses on retail. “Even after a correction in two or three years, office users will still be able to pay occupancy costs.”