As U.S. mall owners still grapple with how to fill vacancies from department store chains like Sears and J.C. Penney, redevelopment strategies were a major topic of discussion at the annual ICSC RECon convention held in Las Vegas this week. While there are no "cook cutter" solutions to filling the gaps, apartment complexes and hotels were two of the new uses that some of the biggest retail landlords had top of mind.
The co-working industry continues to grow and evolve throughout the country, and a new high-end concept will open its first-ever U.S. location at an Atlanta mall. Luxury workspace provider No18 has signed a lease at The Shops Buckhead Atlanta and is slated to open in fall 2018. No18 will occupy nearly 32,000 sq. ft. of space at the open-air center that spans six city blocks and features more than 50 stores and restaurants along a streetscape setting.
According to Chain Store Age, No.18 is described as a members club for businesses and will offer a range of curated, flexible workspace options in an upscale, sophisticated environment. No18 members will have access to a members lounge, premium private offices and dedicated desks. All members will be able to take advantage of the concierge-level services, fully equipped meeting rooms, and a luxe event area to host meetings and gatherings.
By Jerry Heaton, Senior Managing Consultant, Dallas
The article below was published several years ago, and not only have the predictions come true, they have been surpassed more than anticipated. So far this year, the number of retailers filing for Chapter 11 Bankruptcy is headed toward the highest annual tally since the great recession, per Moody’s distressed list. Amazon is about to unseat Macy’s as the largest seller of clothing. Shopping malls are becoming extinct with Macy’s, Sears and JCPenney all hanging on by selling off real estate assets and closing stores. Just this month, two more women’s and teen apparel chains – Bebe Stores Inc. and Rue 21 Inc. – announced plans to shutter hundreds of stores in shopping centers across the nation. And while Amazon already dominates the book and electronic industry, they’re taking on big box grocery stores next.
As many shopping centers continue to suffer nationwide, conventional wisdom says that there is an over-supply of malls and the only way to survive is to cater to wealthy shoppers and/or reinvent the space completely. However, a small crowd of operators is dismissing this notion and believes there are plenty of revitalization opportunities in “small town America." While strategies vary and not every struggling mall is a good candidate for a refresh, these operators target distressed properties in places with no other enclosed shopping center within 50 to 100 miles. Such older properties have some inherent advantages. People still come to malls to participate in the social aspect of shopping—especially in suburban or exurban places with few large gathering places, and these older properties were often built as the surrounding community was sprouting and have ideal locations.
As the number of empty storefronts continues to grow across the U.S., signs are pointing to a slowdown for the national retail-property market. Vacancy rates in community shopping centers increased in 30 of 77 U.S. metro areas last year, compared with 24 in 2015 and 19 in 2014, according to data from real estate researcher Reis Inc. Rents, which usually increase roughly at the rate of inflation in healthy markets, decreased in two metro areas for the full year. In the fourth quarter, rents fell in 15 metro areas from the third quarter.
U.S. department stores have been struggling for several years now as online shopping popularity continues to grow – but now it’s the investors who are paying the price for the dramatic shift in shopping preference. According to Reuters, weak September core retail sales, which strip out auto and gasoline sales, provide a window into the pain the holders of mall debt face in coming months as retailers with a physical presence keep discounting to stave off lagging sales. Some $128 billion of commercial real estate loans - more than one-quarter of which went to finance malls a decade ago - are due to refinance between now and the end of 2017, according to Morningstar Credit Ratings. Wells Fargo estimates that about $38 billion of these loans were taken out by retailers, bundled into commercial mortgage-backed securities (CMBS) and sold to institutional investors.
As brick-and-mortar retailers continue to be squeezed out by Amazon and its online competitors, shopping center owners are continuously looking for creative solutions to their anchor tenant problems. While major grocery chains, movie theatres, restaurants, tech companies, and condos are being regularly implemented into the multi-use shopping center trend, health-care is the latest big tenant option to emerge. The health-care industry is moving away from centralized campuses to bring services closer to patients at a time when two key demographics – boomers and millennials – are entering prime years for consumption. For the health-care companies, softness in the retail market has helped them negotiate favorable leases, including improvement allowances. Medical facilities also look good financially as tenants, with credit profiles that stack up well compared with nail salons and fast-food restaurants.
Retail landlords are starting to feel the pain of their struggling tenants. Macy's, Nordstrom, J.C. Penney and other department stores last week reported another quarter of crummy earnings and warned that declines are expected to continue. Chains such as Nordstrom said they were re-thinking plans to open new stores, and others are likely to follow suit. Meanwhile, bankruptcy filings by Sports Authority, Pacific Sunwear and a rash of other retailers in the past year -- coupled with planned store closures by Macy's, Walmart, and other chains -- has already led to the highest number of store closures since 2010, according to commercial real estate firm Cushman & Wakefield.
After several retailers succumbed to filing bankruptcy this year, many owners of malls and shopping centers were left scrambling to fill vacancies. Some landlords, however, found the silver lining. The vast majority of these type of properties are occupied and spare space is in short supply in many parts of the country, according to experts and landlord data. Because of this, optimistic landlords are willing to take a ‘calculated gamble.’ Rather than letting another retailer buy the leases and start paying rent immediately, some REITS will buy leases of struggling tenants and let the space sit open while they find new tenants they can charge higher rents.
Macy's will close 35 to 40 underperforming stores, around 5% of its total locations, in response to shifting shopper habits and investor demands to make better use of its real estate. While the specific stores have yet to identified, they are expected to be shuttered in early 2016. Annual sales volume at the stores is expected to be about $300 million, which would represent about 1 percent of total Macy's sales, the company said.