August 17, 2010
Barbra Murray, Contributing Editor
Crumbling along with the housing market, the retail real estate sector took a nosedive a long time ago. However, according to real estate services firm Colliers International’s new white paper, The Big Box Dilemma, large big-box chains that managed to remain afloat during the economic crisis are beginning to soak up some of that space vacated by retailers who could not keep their heads above water.
“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,” Garrick Brown, Colliers International’s Retail Research Director, noted in a prepared statement. Many retail chains that escaped the ravages of the recession and the freezing of the credit market now have their eyes on expansion. As per Colliers’ white paper, approximately one-third of the top 500 retailers in the country have ratcheted up their expansion agenda for the year 2011, just for starters. And there is ample space to choose from, as 300 million square feet of vacant big box space–accounting for 34 percent of all vacant retail space in the U.S.–existed as of the end of May. Property owners and brokers are, perhaps, more eager than ever to lease up the properties, as 120 million square feet of the available 300 million square feet of big box space has been on the market since January 2008.
With options galore and rental rates continuing to hover at low levels, the timing is just right for the growing big box chains to secure long-term lease agreements for spaces vacated by downsized or failed retailers, among them, bankrupt consumer electronics chain Circuit City, which shuttered the doors of the last of hundreds of locations in 2009. Another electronics retailer, HHGregg, has been taking advantage of the pool of vacated big box sites, having opened more than 20 stores over the last 18 months, and the bulk of these locations were previously home to Circuit City. Mervyn’s stores are high on the list of desirable big box sites, too. Together, the 149 abandoned Mervyn’s stores encompass 5.5 million square feet, and Colliers forecasts that approximately 50 percent of that space will be backfilled within the next 12 months.
Of course, within the big box market, certain properties are more desirable than others are in the eyes of growing retailers seeking second-generation space. Top-tier big box spaces, those in leading shopping centers or operating as standalone stores at well-traveled intersections, are the most coveted among the big box properties and are spearheading the slow recovery of the retail market. Colliers anticipates that, within the next 12 to 24 months, the majority of the top-tier segment will be backfilled.
“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,” Brown said. As per the white paper, JCPenney, PetSmart, Staples, Walmart, Bed, Bath & Beyond, Best Buy, Dick’s Sporting Goods are among a group of leading retail chains have outlined growth program to be executed over the next several years.