First Look - Where Have All the Retail Tenants Gone?
By: Elizabeth Sherrod, managing editor and research director, NAIOP
According to a report by Colliers International, there has been 120 million square feet of big box retail space vacated since January 2008, the equivalent of shopping center inventories of Baltimore, Cincinnati and Kansas City combined. How has the retail industry been impacted and what are some creative adaptations for the vacant boxes?
Garrick Brown, vice president, research, Colliers International, discussed these issues and more in an October 2010 Solution Series program entitled, "The Big Box Dilemma." Here are some of his insights:
On the leasing side:
- Space vacated over the past two years is typically leasing at rates 30-40 percent below what previous tenants were paying.
- For properties where tenants are providing their own tenant improvements, discounts have been as high as 50 percent.
- Ten-year deals are the norm.
On the sales side:
- The average price of big box space sold over the last year nationwide has been $97 per square foot (psf), with an average cap rate of 7.8 percent.
- Occupied boxes have routinely traded above $150 psf, frequently surpassing the $200 and $300 psf mark. Vacant boxes have typically traded in the $25-$75 psf range, with cap rates often exceeding 10 percent.
In discussing who is backfilling the vacant boxes, Brown noted:
- Of the roughly 17 million square feet vacated by Circuit City, HHGregg will backfill more than 2.5 million square feet through 2011.
- Former Linens N’ Things store locations have proven popular among a mix of retailers – TJMaxx, Marshall’s, Ross, Best Buy and HHGregg.
- Kohl’s, Forever 21, Burlington Coat Factory, Hobby Lobby, Walmart and Safeway are among those that will backfill vacated Mervyn’s stores.
Brown commented that large retailers like Target and Walmart are reducing their footprints to break into the urban markets. Top converted uses of vacant boxes include medical use/clinics; office and call center use; libraries and college satellite locations; and community centers. Other more creative uses include shooting ranges, indoor sports (skate parks, paintball, rock climbing, miniature golf), health clubs; and dining/entertainment destinations (Dave & Buster’s type concept). Brown remarked, "Creative adaptation has been minimal so far due to capital constraints, but expect it to explode as a trend positively impacting vacancy levels in the long-term."