Home > Uncategorized > Location, Size Make All the Difference in Big Box Vacancies

Location, Size Make All the Difference in Big Box Vacancies

The national retail real estate market is recovering, with many retailers finding space at quality locations formerly occupied by big box tenants that have gone out of business, according to a recent study by Colliers International, authored principally by Jeff Simonson, senior research analyst.

Using the recent bankruptcies of Circuit City, Linens ‘n Things, Mervyns and Gottschalks as a model, the study: Re-Tenanting Bankrupted Big Boxes: Paving the Way for Retail’s Rebound, examined the recovery timeline and trade area characteristics of those retailers’ individual locations as a means to help predict the recovery behavior of future big box vacancies.

Colliers International took a sample of the 1,259 store closings and 56 million total square feet of vacated space from those former retail tenants. Analysis revealed that:

  • In centers where the big box tenant occupied 60-90% of the total center space, it took an average of seven quarters to refill the vacated big box space-nearly double the average of 3.7 quarters.
  • In locations where one of the four bankrupt big box tenants comprised less than half the total center, the likelihood of re-tenanting the vacated space was approximately 40%.
  • Vacated bankrupt big box spaces leased up faster in the most densely populated areas (2.4 quarters) compared to the least densely populated areas (3.4 quarters)-an average difference of approximately 100 days.
  • Bankrupt big box tenants in Sun Belt states leased up faster than those in non-Sun Belt states – 144 fewer days, on average.

“The retail sector is absolutely on the rise, marked by a flight to quality,” said Mark Keschl, national director of retail for Colliers International. “The recent bankruptcies of these four retailers caused disruption, and there will likely be more pain along the way. Blockbuster and Borders are closing stores, and many other retailers are also pursuing strategic downsizings and closures. But what we see here is that underlying retail real estate with good fundamentals continues to attract tenants. The location and size of those spaces has a nuanced effect on how quickly they re-let.”

The studyalso revealed that the bankrupt big box vacancies did not cause a ripple effect across the centers in which they were located. Retail centers are always at risk of a domino effect among vacating retailers; as one leaves, others may follow. Yet only 1% of additional vacant square footage was observed in centers that housed at least one of the bankrupted big box tenants.

The report also noted:

  • In the most densely populated trade areas, Sun Belt locations averaged 1.7 quarters to re-let versus 4.4 for non-Sun Belt locations-a difference of roughly 243 days.
  • Freestanding big boxes averaged 2.9 quarters to re-lease versus 3.6 quarters for multi-tenant spaces.
  • By January 2011, the average vacancy rate for retail centers where big box space was vacated decreased to 17.3%-an improvement, but still more than triple the rate prior to when their big box spaces went dark.
  • However, centers that re-let the big box space averaged a 5.4% vacancy rate, versus 28.5% for those centers where the vacated spaces remain empty.

Reprint from CoStar.com        By Mark Heschmeyer

Categories: Uncategorized
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