I know physical retail has been on a decline for the past several years, but most stores were getting by and only moderately downsizing. I noticed this year has been insane with the amount of store closings, some which are closing all stores. In one of the towns I drive through when traveling, the Macy's has closed, the JCP is about to close, and the Sears has announced it will close this location as well. This accounts for like 40% of the rentable square footage for place. Then there is a retail center I live near that has stores like Bed Bath & Beyond, Michael Kors, and others. Probably about 15% of the rentable square foot will be unoccupied by early next year.
Anyone noticing the rapid growth in store closures this year? How about you guys that own retail RE? Are cap rates increasing? Are you getting worried or are you still able to re-lease the space quickly.
I like innovation, but at the same time, I enjoy going out with friends/wife to go shopping physically and making it a night out. I think we are losing that personal touch to the mall. Thoughts?
I thought that this was a very interesting presentation by GGP at REITWeek: http://reitstream.com/reitweek2017/ggp A few of things that I found interesting: * Their spin on department store closures: these failing retailers are no longer delivering value to their centers and replacing them with alternative uses (he names a bunch including theaters, fitness centers, restaurants, and even grocers) will continue to provide increased traffic to their malls. * That retailers are becoming more "channel agnostic" - typical strip retailers are not opposed to relocating into regional malls. For retailers that may not fail, but are rethinking their physical strategy, locating in malls can be a very good option. (Obviously they own malls so he is biased on this, but reasoning at least sounded compelling) * Omni-channel retailing: he talks about online-retailers who are opening physical stores and physical retailers who are diving into online headfirst - and how it doesn't matter who wins, since they both require a physical footprint in top locations. All of these indicate that while the composition of tenants is going to change, well-located malls are still going to be in demand both from retailers and shoppers. To your point above, the math might be a little more difficult at small-town malls and swallowing hundreds of thousands of SF of vacancy created by these store closures could take a little longer.
Anecdotally, there is mall-located Sears in my market has announced that it is closing later this year. However, they have been carving out their space to smaller tenants for years so the impact won't be nearly as large as if the whole space was vacated at once. And back to point number 1 above, I don't think that Sears has been a great draw for customers at this mall for some time and replacing them with a better user/use will be a net positive for shoppers, other tenants and the landlord.
In the right market, these big box spaces could make great hotels or MF where windows are accessible. The center of the building could be gyms, movie theaters, even gun ranges. Highest and best use will prevail in time.
Echoing what has been said above, I think it is more of a redefinition of the traditional mall rather than a killing-off. Many tertiary malls that were built decades ago when the mall was king are going to wither away, but well-located malls in markets with the population to support them seem to be doing just alright and may even benefit from the increase in open-mindedness and creativity from tenants that previously would not have considered leasing mall space. Malls that can survive the shift from large department store anchors into more, smaller bays may even benefit from more distributed vacancy risk and higher overall rents.
As an example of adaptation, I've seen numerous shopping centers (although not many have been indoor malls to be fair) that have backfilled anchor space with trampoline parks like SkyZone. A few years ago no one had even heard of SkyZone. Similarly I have seen some new retail developments go up recently anchored by entertainment such as bowling alleys and cinemas rather than stale department stores.
I see the climate more as the death of the department store rather than the death of the mall.
lol ya. the dillards in a mall near me is now an LA Fitness
"Is this the year the mall dies" is generalizing a bit too much.
Your basic, middle-America mall has been brain-dead and on a feeding tube for years already. Wal-mart and Target (which is also suffering as of late), not to mention online shopping, have put Sears, Kmart, JCPennys, etc. to rest. Teenagers aren't forking out their parents' cash for crap at Hollister or Abercrombie anymore - they're either paying the money for real quality, paying absurdly cheap prices for fashionable yet disposable clothes like H&M, or are hipsters. People, whether they're rich or poor, either want supreme quality or incredibly low prices these days. Sears, JCPennys, etc. offer mediocre quality at mediocre prices. They're dead. However...
As others have said, this presents opportunities. Community colleges are renting mall space. Local governments are renting office space. Small businesses are renting mall space. Mall land, in general, is often absolutely prime for redevelopment. It's flat, has all utilities, usually well located, easy to demo, etc. It's perfect for large, mixed-use, town center type deals. (As are ugly, aging office parks) Mall redevelopment is going to be massive over the next decade or two.
There are, of course, some malls that are doing well - high end malls in particular. The Green Hills Mall in Nashville is a good example. Instead of Claire's, they have Omega and David Yurman. Instead of Abercrombie and American Eagle, they have North Face, Burberry, 7 for All Mankind, and Lilly Pulitzer. Instead of the AT&T franchise retailer and knock off phone cases, they have an Apple store.
no.
Wonder if Amazon buys/leases some of the space for distribution
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