By next year, 36 million square feet of retail space could be vacated and returned to the market.
It’s official – the global landscape of retail is changing and changing rapidly. These changes are driven by a combination of growing e-commerce use and a demographical shift in consumer behavior, which prioritizes experience over tangible goods.
I appeared as a guest on Robert Kiyosaki’s (author of Rich Dad Poor Dad) podcast “Rich Dad Radio Show” a few weeks ago to discuss this very trend. You can listen to our full conversation, titled “Mall Rat” here.
- 1/3 of malls can’t afford to pay for the maintenance of their structures.
- More than 300 department stores are closing this year – Adding 36 million square feet of vacant space back into the market.
- Retail space isn’t necessarily overbuilt, it’s under repurposed – We expect to see more restaurants, entertainment venues, grocery stores and even other department stores take up space.
- Historically, rents paid by department stores have been extremely low – usually less than $10 per square foot. As they become vacant, owners have a new opportunity to re-tenant the space and create significant financial rewards.
- Along with dining & grocers, entertainment tenants are playing a bigger role in shopping centers - The best use for an empty anchor will vary and be dictated by the demographics and lifestyles of the surrounding community, but the many options available might come as a plea.
- Seritage Growth Properties, which has 266 properties originally leased to Sears Holdings, is now redeveloping and re-leasing space originally held by Sears and Kmart stores to new tenants. See the chart below to see how they are releasing their properties.
As always, if you have questions about how these massive changes to the retail space will affect you and your business, give me a call.
Source: Seritage Growth Properties, Corporate Profile, March 2017
How Are Owners Reacting?
- The next occupiers of the vacated spaces run the gamut, sources say, from specialty retailers to service providers to entertainment concepts to industrial and office tenants.
- Retail real estate is undergoing an entrepreneurial moment like never before.
- Some anchor space is getting repurposed as charter schools, community colleges and call centers.
- Medical office space is another contender in the non-retail tenant category - At Hudson Valley Mall in Ulster, N.Y., integrated healthcare system Health Quest will take the 81,000-sq.-ft. space left behind by a shuttered Macy’s and turn it into a medical center.
- What the convergence means for rents on an absolute basis remains to be seen – Experiential tenants typically pay higher rent than previous tenants.
- There is also Sea Life, a small chain of aquariums that has moved into the big-box space in six to seven malls. But all of those uses come at pretty significant improvement costs.
Source: Wit of Wisdom, by Henry Moore
- Brands like Bandier are putting more of an emphasis on in-store experiences.
- Converting space that was once used for merchandise to areas for social and physical activities, i.e. yoga classes, dance classes, live concerts, in-store bars and lounges.
- It’s working: Revenue is rapidly increasing and customer/brand loyalty is stronger than ever.
- Grapevine Mills Mall located in north Texas feels almost like an amusement park. In addition to more than 200 retail outlets and restaurants, it has a Sea Life aquarium, a Legoland and a Round One Bowling and Amusement, which includes 24 lanes of bowling, billiards, video games and a karaoke studio.
- In Austin Texas, Highland Mall is being reincarnated as the 11th campus of Austin Community College, under a nearly $900 million public-private initiative that has stirred new life into the surrounding North Austin neighborhoods.
- When the owners and developers aren’t sure how to repurpose the existing structure, they are just demolishing the old and repurposing the land.