Strolling the Agora column for the August 3rd, 2009 Issue of SHOPPING CENTER DIGEST
“You know,” a top real estate executive with a major owner-developer of shopping centers told me, “it's as if I were a tiny hamster racing around one of those wheels in a cage. I'm going like crazy and at the end of all that rushing and running I'm still in the same place – if I'm lucky.”
What he was referring to was that most of his efforts and energy are being spent re-negotiating existing deals–trying to find new ways to retain tenants, preventing them from closing stores and contributing to the ever-growing increase of vacancies in his shopping centers – than prospecting for new tenants. “And trying to locate new retailers to fill the holes… we're trying, but it's very difficult to tell our story to them, or their reps, if we don't already have a relationship with them. There aren't enough hours in the day for that.”
This struck very close to home last week when I was discussing the reasons why a high-end, specialty retailer had not renewed her subscription to Shopping Center Digest. “We've been told by the home office to cut all expenses,” she said, “and why do I need a publication about new shopping centers or expansions when so little is happening now. And I'm besieged with offers of great locations and great, new deals by my current landlords and people I've never done business with?
“However,” she added, “when developers start building and expanding malls, and I need that information before my competitors, we'll be back.”
Nick Lillo of SLF Associates, who specializes in restaurant leasing in malls and life-style centers, admitted that “… but for a very precious few, our business remains in limbo… requests for rent relief, closings, cautious lease renewals with operating 'safe bailout contingencies', are the talk of the day.”
Landlords Being Realistic
Paul Fetscher of Great American Brokerage, another dealmaker specializing in the restaurant niche, is making some new deals. “Fortunately,” he said, “I am spending plenty of time with active franchisees… and landlords willing to be realistic and those who realize that yesterday's rents weren't the real rents – are coming to the table and willing to cut reasonable deals.”
A veteran leasing professional with a national apparel chain explained that with the slowdown in his company's growth plans, “we're focusing primarily on leases coming up for renewal in the next three years. This enables us to offer an early renewal to the landlord in return for reductions. It helps with making the process a bit less contentious.”
With so many big box stores going dark because of the disappearance of Circuit City, Linen 'n Things, Comp USA, numerous department store anchors, category killers, etc., etc., many landlords fear that excessive percentage of vacancies could trigger other tenants from using their co-tenancy clauses as a reason to close their stores. This is part of the reason why, as we mentioned at the end of last year, some key retailers were being allowed to remain in their locations by paying only percentage rent, or in some cases, without paying any rent.
But many of these vacant stores, a leading broker stressed, “are ideal locations for value-oriented, expansion-minded retailers like T.J.Maxx, Kohl's, Target, Home Depot, Lowe's, Babies R Us, numerous supermarket chains, and the like.”
Opportunities Not Available Before
Which is an important reason, said Lillo, “for new space being negotiated on an entirely different, much lower 'sales pro-forma' base than even one year ago… reduced hours of operation, fixed pricing, 'smaller plates'… all now a big part of our new playing field to lure customers back. Burgers, Wings, the QSR are now being given opportunities in locations, shopping centers that would have been impossible only a year ago.”
Among the brands he expects to “lead the charge back into the light… [are such moderate-priced, family friendly operators as “Darden, Cheesecake, CPK, Changs, Bravo, Brinker, B.J's… “
One VP with an apparel chain echoed the comments about landlords becoming more reasonable in their demands: “In the past year or so, I haven't lost a deal to a competitor who was willing to pay more – and it's not because we're stretching our maximums. We've also been able to lower our rent as a percentage of sales, down to single digits in a few instances.”
Another national tenant said part of the reason for his company's slowdown of new development is due to the lack of financing which have delayed or killed some projects, or landlords are reluctant or not able to provide “sizable tenant allowances we have become accustomed to… “
Despite all the doom and gloom we're hearing today, it is far from all negative, with numerous dealmakers seeing future opportunities on the horizon.
The retailers with vision, said a national consultant, are the ones taking advantage of the current economy and willing to make great deals now. “Spaces aren't going to 'The Greater Fool'… They are going to those who are willing to step forward in this market. I haven't spoken to anyone who doesn't believe that in the next decade, we will have numerous years of prosperity. So let's lock in a good deal today and lock in those rents!”
More information on SHOPPING CENTER DIGEST, and our associate publications, EXPANDING RETAILERS and the DIRECTORY OF MAJOR MALLS may be obtained from our website, www.shoppingcenters.com.
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.