The Common Area
Landlords Ready to Absorb Store Closings
Date may 2014
Featured in Shopping Centers Today
Despite a few high-profile store closing announcements from the likes of Family Dollar and RadioShack, U.S. landlords remain optimistic about backfilling those stores.
Mark Dufton, chief executive officer of Woodbury, New York-based DJM Real Estate, a Gordon Brothers Group company that assists retail chains with dispositions, says he expects a larger number of store closings in 2014 than the industry has experienced over the past few years, especially in the mall space. He declined to name specific chains that have come to his firm for assistance but says there could be some fallout in the apparel and jewelry sectors.
Dufton specifically points to women's clothing retailer Dots, which is going out of business and shutting its 359 stores, and the 240-store multiproduct specialty retailer Brookstone's filing of Chapter 11 in February as two examples of mall tenants facing trouble.
"A lot of retailers have come to us with mall locations asking us to do lease mitigation," Dufton revealed. "Mall traffic in non-top-notch locations is down."
Mall owner Macerich has few assets like that in its high-occupancy portfolio. Ironically, vacancies are often looked at as opportunities, says Doug Healey, senior vice president of leasing at the Santa Monica, California-based REIT.
If a mall is 96-percent occupied, he says, it is very hard to add a newer tenant coming into a market, such as Uniqlo, because only a few lease expirations might take place in a given year. "You can only do so much with tenants naturally expiring," Healey said.
Macerich has a department that tracks retailer performance to gauge whether or not mass closings are on the horizon. There is "nothing alarming" taking place in the mall space, Healey says. "In all sectors of retail, there are a lot of cycles that come and go," he says. "Over time, many retailers that have had many good years might have a down year or two. But a down year doesn't necessarily mean [significant] store closures."
Ann Nantunewicz, vice president of retail services in Colliers International's San Francisco office, doesn't think there will be a great deal more store closings this year than normal but stressed that landlords need to think creatively when a 10,000-square-foot junior anchor goes vacant and a similar-sized replacement can't be found. In some cases, she contended, that shell could be converted into ten 1,000-square-foot stores that could end up collecting the same amount of rent as the large tenant that left.
DJM's Dufton does not think that landlords need to be overly concerned, unless their portfolios are primarily filled with unfavorable, underperforming real estate.
"The good real estate continues to clip along," said Dufton. "The stuff that is just off the market is trending worse. Retailers don't want to spend their capital on a site that is questionable."