SEATTLE-While the past few years have witnessed a massive increase in the amount of vacant retail space on the national “big box” market, many other retailers with expansion plans see opportunity in these larger spaces made available by struggling or failed retail chains. So says the Big Box Dilemma, a new white paper from Seattle-based Colliers International.
According to Colliers, nearly one-third of the nation’s top 500 retailers have increased their growth plans for 2011 and beyond. “Strong store sales during the first half of 2010 have emboldened these companies to lock in competitive lease rates in new locations.”
The white paper analyzed the big box retail market and identified several other notable trends: Despite numerous big box store closings and chain liquidations, stronger retailers have been re-leasing several of those vacated locations as second-generation space. For example, the report notes that electronics chain hhgregg has opened more than 30 stores within the past 18 months—and plans to open 45 more in 2011. The majority of these new locations formerly housed failed electronics giant Circuit City. As GlobeSt.com reported, the appliance and electronics retailer recently picked up 40,135 square feet at Swedesford Plaza, a 152,000-square-foot center located at 428 N. Swedesford Rd. in Betwyn, PA.
In addition, top-tier big box locations—those within busy shopping centers or freestanding boxes situated on prime intersections—are moving quickly, thanks to once-in-a-generation pricing opportunities and to rapidly expanding discount and off-price retail chains, the white paper says. “These top tier big box sites are currently accounting for the lion’s share of retail occupancy growth in the US.” Colliers International expects most of these sites to be backfilled within the next 12 to 24 months.
“Big box retailers face one of the most challenging periods in modern times, but the demise of several large chains has created opportunities for other retailers,” says Garrick Brown, Colliers International’s retail research director. “There is still a remarkable amount of vacant big box space, but second generation use is serving as a platform to help revive the sector.”
Among the white paper's other key findings: Total big box vacancy registered approximately 300 million square feet nationwide at the end of May 2010—accounting for nearly 34% of all retail vacancy; Roughly 120 million square feet of that space alone was vacated since January 2008—a total equivalent to the entire shopping center inventories of Baltimore, Cincinnati and Kansas City combined; Investment sales prices for big box assets in most markets are down by 40% or more from the peak real estate values recorded in 2006 and 2007. Rental rates have declined similarly. For tenants able to fund their own improvements, rental rates have been discounted by as much as 50% or more in select cases; The outlook for second and third-tier big box locations remains cloudy. It will likely take many years to backfill many of these sites. In some cases, demolition or the creative adaptation of these properties to non-retail use remain the best options.
In addition to the former Circuit City locations that are already leasing up, several retailers have targeted many of former Mervyn’s sites as suitable locations for their new stores, according to the white paper. Colliers International expects that roughly half of the 149 vacated Mervyn’s locations—totaling approximately 5.5 million square feet—will be backfilled within the next year.
The big box retail market is showing other signs of improvement, Colliers says. Major retailers such as JCPenney, PetSmart, Staples, Walmart, Bed, Bath & Beyond, Best Buy, Dick’s Sporting Goods and many others have all revealed expansion plans to commence over the next several years.
In the white paper, Colliers defined “big box” as retail real estate locations 20,000 square feet or larger.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
