Sunday, May 5th, 2019 May5th2019

Sell for More Trivia: Is the pain over for retail landlords?

Published on May 5th, 2019

Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.

 

Is the pain over for retail landlords?  No.

So far in 2019 U.S. retailers have announced they’ll close 5,994 stores…while opening just 2,641 stores. In 2018, there were 5,864 closures announced and 3,239 openings.  That’s after 2017 was a record year with more than 8,000 closures.

A report by data analytics firm Thasos found foot traffic dropping off at shopping centers across the country in recent months. (Interestingly, Thasos uses more than 100 million mobile phones to track when consumers enter and leave certain trade areas)

It’s only May, but there have already been more closures announced this year than all of 2018. There is no way to spin it…this just isn’t helping retail landlords.

Many retailers made a “comeback” and were able to draw in more shoppers by using promotions in 2018. As retailers are now starting to talk about pulling back on discounting, this could be one reason why traffic is dropping. In addition to the fact that some purchases are moving online.  Another issue is landlords have been hoping that offering shoppers new experiences would make it more exciting to go to the mall, but the early evidence isn’t showing a boost in activity.

The announced closures include more than 2,000 from Payless ShoeSource, hundreds from clothing retailers like Gymboree, Charlotte Russe, Victoria’s Secret and Gap, and discount chain Fred’s.

Meantime, chains like Aldi, Dollar Tree, Ollie’s Bargain Outlet, Five Below, Levi’s, Untuckit, Warby Parker and Casper are planning to open more stores.

And of course landlords are still hoping to add experiential tenants like Legoland, Crayola Experience and Dave & Busters. That said, some early research suggests these experiential tenants aren’t driving foot traffic to the extent expected.

With more store closures likely on the horizon, consumers can expect to start seeing hotels, gyms, apartment complexes, more food halls and grocery stores at traditional malls and shopping centers.

Some are now even predicting store closures will exceed 2017 record levels.  “I expect store closures to accelerate in 2019, hitting some 12,000 by year end,” Deborah Weinswig, founder and CEO of Coresight, said. “The slowdown we saw in 2018 seems to have been a brief respite in what’s a steady, long-term trend.”

The ongoing wave of closures is affecting landlords negotiating position. Shopping center owners, looking for ways to fill empty space, have in turn been forced to negotiate on lease terms with tenants and settle on cheaper rents.

Prediction

I think we’re in a multiyear transition.  The market still needs to cleanse out some of the retailers that lasted longer than they should have.  It’s going to be painful.  It’s going to be costly.  Anyone who thinks otherwise is too optimistic.  But retail properties are not dead.  Weak retailers will go away.  Strong landlords will invest.  Properties will sell.  Money will be made.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 414.324.4938, 615.603.9770, click to schedule a call or Beau@ProwessIRES.com