Strolling the Agora: Higher Vacancies May Be Hurting The Landlords, But It Is Also A Great Dealmaking Opportunity For Discounters And Off-Pricers

Strolling the Agora column for the
October 14th 2010 edition of SHOPPING CENTER DIGEST

By Murray Shor

Considering the stubborn, low level of consumer
confidence caused by the continuing high unemployment rate, it is no surprise
that vacancies have been increasing all around the country, and that some
retailers are focusing on Canada where there is a more positive emergence from
the recession. 

However, selective deal-making is picking up here
in the US in disparate locations as a result of the depressing numbers.
Especially for brokers in prime metro areas, the opportunities are there.

First the bad news: According to the market
research company Reis Inc, which tracks these data, the vacancy rate at
shopping centers in the last quarter rose to 10.9%, the highest level since '91, and closing in on the record 11.1% set the
year before. The rent asked by landlords dropped almost 20 cents per sq. ft. to
$19.07, but the effective rents are even lower, $16.58.

For the larger malls, where average rents are
hovering around $38, vacancies rose only .2% to 8.6%, down from 9% the previous
quarter.

Now The Good News

O.K., now the good news. With the cutbacks from
high-end and full-price retailers who are the foundation of fashion-oriented malls and the CBDs of
major cities
, there is an
accelerated push from the discounters and off-price retailers: TJMaxx, Target, Nordstrom Rack, Syms and its recently acquired Filene
's Basement (now called fbSY), H&M, Century 21.
According to one dealmaker
They consider this a great opportunity for discount deals in prime
locations they could never afford before, and to reach affluent consumers who
shunned them in the past.

A prime example, of course, is Wal-Mart Stores,
which will be opening dozens of smaller units of 30-60,000 sq. ft. in cities
around the country, eventually rolling out the concept of focusing on food and
consumer basics to hundreds of these units. And then, who knows?

These promotional tenants have greater access than
ever before to luxury- and designer-branded merchandise because vendors have
excess inventory and limited outlets for distribution. One estimate is that the
number of top designers now selling to TJX Companies has jumped 25%. The
off-pricers and discounters, therefore, are buying this top-quality
merchandise, and using it to draw in customers in new stores along New York's Fifth Avenue and even Harlem Chicago's Miracle
Mile, Beverly Hills, and maybe even Rodeo Drive. Certainly in the plushier
malls in Las Vegas, they
've been
operating for some time now.

Educating The Affluent

These merchandisers are educating their new,
fashion- and trend-oriented customers that they can continue to buy quality and
at a cheaper price, and strengthen customer loyalty for the future, when the
economy hopefully returns to what we consider normal. In the meantime, they have
locked-in prime real estate at discounted prices,
though they may be paying some of the highest rents they have ever
paid before–and helped tear down the old barriers blocked them from locating
in the A and A+ plus malls, or fashionable locations in some of the most prime
urban centers. Though they much prefer long-term deals, in some instances they
are willing to settle for six months, with options and some built-in increases.

These stores could be considered pop ups, which are becoming a more common trend. 

As we've pointed out several times in the past, these locations are
becoming more common, and the type of deal that appeals to both landlord and
tenant. For the landlord, it provides a rent-paying tenant in a vacant store,
which can be converted to a long-term tenant, either this retailer or another,
perhaps even a competing merchant, at the expiration of the short-term lease.
For the tenant, an inexpensive way to test a new concept, polish and refine the
presentation, and react to feedback from customers before rolling it out in a
mass expansion. Or kill the concept before it does too much damage.

And, of course, they are ideal for retailers that
can exploit special events or holidays: Halloween, Back To School, Presidents
Day, etc. 

Other Interesting Activity

Dollar Tree says it will buy Canadian retailer Dollar
Giant 
for about C$52 million, adding 85 units to its 3,961 stores
in 48 states. VP of leasing is Todd B. Littler, (757) 321-5283,
tlittler@dollartree.com
____________________________________________________ 

GNC Acquisition Holdings is planning an IPO to raise some $350 million to
add about 4,800 company-owned and franchised vitamin and herbal supplement
shops; future plans are to expand to China. The Pittsburgh-based chain's website is www.gnc.com , 1-800-766-7099.
_____________________________________________________

Loblaw Companies is launching The Mobile Shop in more than 500 of
its supermarkets across Canada in a bid to become a major retailer of mobile
phones. Contact Maria Forlini, VP-Telecom, (905) 459-2500, www.loblaw.ca .
_____________________________________________________

Gymboree Corp, which
operates some 650 children's apparel stores, has accepted a bid to be acquired by Bain
Capital for $65.40 per share, or about $1.8 billion. Director of real estate is
Kathleen Hinkley, (415) 278-7993, Email: Kathy Hinkley@gymboree.com .

______________________________________________________

Investors are being drawn to a number of real
estate investment trusts that are outperforming most stock market offerings,
especially those involved in shopping malls, office building and apartment
buildings. In our industry, the top performer is Taubman
Centers Inc
, which during the
third quarter returned 18.5%.


Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts.  A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.
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