Strolling the Agora: “Summer Doldrums,” With Expected Slowdown In Dealmaking, Still Raise Many Conflicting And Contradictory Questions

As we get deeper into the “summer doldrums,” when even the most aggressive and optimistic dealmakers find it hard to keep moving forward because of automatic vacation replies to emails and telephone messages, there are still interesting and contradictory highpoints in the industry. I find “interesting” such a great word because it covers a multitude of sins, doesn't “say” anything, and leaves it open for the reader to interpret it anyway he/she wishes. Mebbe wishy-washy is a good description.

Yes, the vacancy rate rose to 10.9% in our neighborhood and community shopping centers, according to Reis, getting close to the record 11.1% recorded in '91, with vacancies in large malls in the top 80 markets up now to 9%. Result: rents are continuing to come down across the board.

With June sales up only slightly from last year's, “lackluster at best,” according to one analyst, because consumers are still showing marked caution to spending, why were department store sales up 5.8%–higher than expected – while discounters said growth was only 2.9%–lower than expected? And how do you equate this with research saying consumers are more frugal, focusing on bargain-shopping, using coupons, searching for “good buys”?

And with the shopping center rents dropping, and vacancies rising, why are so many retailers, including restaurant chains, now heading for urban/metro centers where rents are more expensive, operating costs are higher, and chances for success riskier?

So, why are so many domestic chains – including Wal-Mart– heading overseas because they see greater opportunities for growth, and more foreign retailers are coming to the US and Canada for the same reason?

High-end department stores, luxury and fashion retailers have always pushed their exclusivity and traded on their posh surroundings and stressed that certain merchandise could be found only in their establishments– and by paying top dollar. So, why are so many of them now involved in deep discounting and heading for outlet centers?

The most expensive designers – Marc Jacobs, Jimmy Choo, Hugo Boss, etc., etc–have avoided selling to the masses on the internet in the belief that it will erode their image. So, why are so many now preparing, perish the thought, to offer their product directly to the masses of consumer from their own websites?

Was it so many years ago that a highly regarded developer of quality malls told me that he didn't want us to list any of his centers in our section, Centers With Lease Space Available, because he felt admitting to vacancies would detract from the prestigious image he wanted to project? Now even the most Triple-A project with a waiting list of eager tenants-to-be is not averse to having us mention the mall and leasing agent to call.

Hmm, there's that “interesting” again, as we look at two major urban cities and contradictory projects there.

In New York, Thor Equities just won the Takashimaya building on Fifth Avenue by bidding $142 million, and is expected to put another $40-$60 million into it to add some space and update the façade. Reportedly, the developer hopes to rent the first eight floors to a single, high-end retail tenant willing to pay up to $2,500 per sq. ft., possibly a European luxury company seeking top exposure, or a domestic merchant with a similar demand.

Then, in downtown Winnipeg, Canada's top department store, The Bay, is undergoing renovation of its 75,000 sq. ft. building which has been operating there since 1926. 

The retailer is moving its discount chain Zeller's into the basement and looking to rent the upper floors possibly to office tenants. Said a spokesperson: “We are just condensing. Right now, we only occupy about 50 % of the space.” The owner of The Bay is now NRDC, a US-based company.

If you're looking for a single, concise statement to bring together all these various anomalies so they make sense and are easily understandable, forget it. I can't do it, unless you accept a token “expediency.”

And what does it all mean for the average dealmaker, just trying to put a living, breathing tenant into a 2,000 sq. ft. vacancy?

Well, one more curiosity: Some top professionals occasionally complain when they're having large amounts of trouble leasing a center to a retail tenant that they “can't even give the store away.”

In Cameron Village, the first planned community in Raleigh, NC, the shopping center is doing just that, offering space to nonprofits who are giving back to the community. It's a chance to do something good for a local charity and it helps avoid one of the biggest eyesores in the shopping center industry: vacant space. “It's not about always trying to collect the old buck,” said its property manager Lynne Worth.

Is there a message here?

Further information on Shopping
Center Digest, our weekly Eflash, Expanding Retailers,
and the annual Directory of Major Malls may
be obtained from our website, www.shoppingcenters.com.

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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.