Recovery Has Led To Slowest Rate of Store Closures, Bankruptcies In Years

The return of consumers to shopping centers with the recovery is cited as a probable factor by JLL in the closure of the least amount of retail space and bankruptcy of retailers in years.

The US is on pace to see 87 million square feet of retail space impacted by closures—which would be the least amount of space since 2016 and nearly half the totals seen in 2020 said JLL, pointing to data from CoStar Advisory Services.

The recovery has also inspired many retailers to expand, particularly those catering to everyday needs such as dollar stores, other discounters, grocers, along with home décor and beauty outlets.

As examples, JLL said Dollar General and Dollar Tree will open 1,650 new stores combined in the next year. With grocery prices spiking, Dollar General saw a 32% year-over-year spike in foot traffic during July.

The increase in foot traffic has led to leasing returning to pre-pandemic levels with nearly 22,000 leases comprising over 64 million square feet signed in the second quarter, JLL said. In the first half of the year, roughly 41,000 leases were signed for about 121 million square feet of retail space.

The second quarter’s net absorption of 20.1 million square feet, driven by strong demand for general/freestanding retail and neighborhood centers, was the highest since the third quarter of 2018.

Malls remain the retail type most at risk, according to the JLL report. “Net absorption, while improving, still tracked at -0.5 million square feet in the second quarter.”

The company noted malls are not faring equally: overall mall vacancy rose 10 basis points to 7.2% with lifestyle centers, the only mall type to show (albeit slight) positive absorption in the quarter, has a vacancy of just 6.5%, and regional malls, in showing 10.0% vacancy, thanks to the loss of some anchor tenants.

Rents have generally increased by 1% over the year with urban and coastal markets like New York, Boston and Los Angeles seeing declines. At the same time Southwest and Southern markets like Las Vegas, Nashville, Atlanta and Tampa have all shown strong increases.

Power centers saw their first positive net absorption in five quarters, with 0.3 million square feet absorbed.

“Future demand growth appears promising, with recent opening announcements from Michaels, which plans to open 33 stores; Dick’s Sporting Goods, which plans to open 6 namesake stores and 8 specialty concepts, including Golf Galaxy; and Floor & Décor, which is planning 27 new locations during its fiscal year,” the real estate firm said in its report.

JLL added some retailers are focusing on smaller, more efficient locations with the average store footprint continuing to fall, dipping below 3,100 square feet in the second quarter.

Those retailers have included Target which has partnered with Ulta Beauty to launch 100 shops-in-shops this fall, with a target of 800 of these mini-shops in the next few years.

This summer JLL said mall owners and retailers have reported strong growth over the last quarter as they begin functioning more as town centers.

The optimism also showed in an analysis from Placer.ai which indicated visits to indoor malls in the second quarter were “within striking distance” of pre-pandemic levels, while outdoor malls also saw their visit gap drop to a mere 0.7% during the same period.