Landlords Are Easily Backfilling Big Boxes

When Toys R Us announced plans to shutter its stores this year, the retail market went reeling, wondering what would happen to the surge of big box spaces that would inevitably hit the market. While we have yet to realize the full impact of these store closures, Orange County has been shaking off the worry. With a 3.5% vacancy rate, according to the most recent research from CBRE, the Orange County market has been able to backfill these big box easily as users in the 20,000-squre-foot to 30,000-square-foot size range are looking for quality space.

According to the CBRE report, discount retailers like TJ Maxx and Ross have been most active in leasing former Toys R Us locations, as well as Party City, which has leased several locations temporarily for pop-up experiences. Additionally, grocers have been active in leasing these spaces. “Most landlords aren’t having a hard time filling boxes, and at rents that are decent,” Walter Pagel, SVP at CBRE, tells GlobeStc.om. “In some instances those boxes will need to be split up, but most of the vacant boxes are in regional locations, not in neighborhood locations.”

Pagel says that the traction on the Toys R Us spaces is evidence of the tight market. While the vacancy rate ticked up in the second quarter and absorption was negative, Pagel says that the market is still very healthy with limited opportunities for well-sized spaces. “In most of my shopping centers, the vacancy rate is very low. We do have some turnover, but we see that in the best of markets,” he explains. “There is a lack of good space to lease. Food has been on fire, and that will not change any time soon, and the discount retailers haven’t been impacted by the Internet. If you have a center with a good anchor, you shouldn’t have a problem leasing the space.”

Many markets are seeing a bifurcation between quality locations and submarkets and locations in less desirable locations; however, Pagel says that retail demand is strong throughout the Orange County market, and that is likely because of the online shopping patterns of residents. “In markets with higher demographics of people shopping online, there is still a mix of brick and mortar and online shopping. People in those demographics aren’t solely buying goods online,” he explains. “So, online shopping isn’t killing bricks and mortar, but the retail market has had to learn how to cater to both customers. I imagine that online purchasing is more active in affluent areas. That demographic, however, is spending money online and in-store. In lower income areas, I think that online purchasing is way down. That is what I would expect to see.”

Demand is not going to be an issue in filling these boxes, but Pagel says that some shopping centers may have co-tenancy problems that restrict leasing opportunities. Those problems are center-to-center specific, however. Overall, demand has been able to absorb the new supply.