Report: Retail Real Estate Will Stabilize Despite Hitting New Low

Boston—Colliers International, a leading global real estate services firm, released its annual report on retail real estate trends showing new retail construction will hit a 25 year low in 2010. However, according to Colliers’ 2010 Retail Trends & Opportunities report, retail vacancies will stabilize in many markets. “We aren’t out of the woods yet, as new retail construction has virtually disappeared and lease rates have dropped 25 to 40%,” adds Garrick Brown, Colliers’ U.S. retail research director who compiled the report.

Moreover, Colliers is dubbing 2010 as the year in which “not as bad is the new good.” The commercial real estate foreclosure crisis will not play out as the tsunami many forecasters predicted. Nonetheless, challenges abound as more retail failures, more bankruptcies, and more store closures are ahead. But the good news is that amid this landscape, consumer sentiment and spending will begin to improve, thus bolstering the retail sector and re-igniting real estate activity. According to Colliers, there are more retail space-users making moves in the market today than there were a year ago, and Colliers predicts these numbers will only increase going forward.

“It appears that retailers will likely face a period of years during which wave after wave of troubled assets will gradually be returned to the marketplace,” says Brown. “This will result in further pricing drops, but retail space values have already taken the lion’s share of the declines that can be expected. Retail real estate is entering into what’s best described as a ‘not so fast recovery.’”

Expansion plans: Some specialty retail chains, however, have expansion plans in the works. Among those cited in the report include:

• Coach plans as many as 20 stores throughout North America in 2010

• Liz Claiborne will be rolling out a new concept, LCNY, over the next 18 months

• Henri Bendel plans to expand in the U.S. in 2010

• Urban Outfitters plans on 50 new stores in 2010 and opened about 35 new stores in 2009

• H&M is aggressively expanding and pursuing urban street front retail and mall sites. It is currently on track to add about 240 new stores worldwide this year.

• Lululemon Athletica plans on accelerating growth in 2010 and plans on as many as 15 new stores in 2010 and 25 stores annually for at least the next few years

• True Religion will reportedly add as many as 25 new stores in the coming year

• Topshop has one confirmed new store in New York slated for 2010 opening. As many as 15 stores throughout the U.S. are planned over the next four years

• Zara is planning for as many as 10 new US stores. California, Florida, Georgia, Illinois, Nevada, New Jersey, New York and Texas are the focal points for growth in the coming year. Worldwide expansion plans for Zara call for 450 new stores over the next two years

Some of the key leading trends from the report include:

Year of the Pop-up: one of the bright spots in retail has been the emergence of pop-up or temporary retail space. The entry of trendier retailers into the pop-up game has bolstered landlords’ willingness to do very short-term leases. Walmart and Target joining the fray in urban settings. Target, for example, is expected to replace the century-old Carson Pirie Scott store in this Louis Sullivan-designed building in Chicago.

Department store players shift to outlet mode: In the face of most major department stores booking double-digits losses in 2009–and the fact that American consumers remain in frugal mode–it’s not surprising that department stores are jumping on the “cheap is chic” bandwagon, joining the slew of dollars stores and pop up stores taking over vacant retail spaces left behind during the recession over the last two years. Among the retailers joining this trend include:

Bloomingdale’s has four outlet stores planned for 2010 and is expected to boost outlet store openings further in 2011. Planned open¬ings include: Bergen Town Center, Paramus, NJ: Dolphin Mall, Miami; Potomac Mills, Washington DC area, and Saw grass Mills, Sunrise, FL.

Nordstrom plans on adding at least 16 new Nordstrom Rack stores this year, which boast price points that are about 50% lower than those offered in Nordstrom’s traditional department stores. Nordstrom added 12 Rack stores in 2009 (including two in Manhattan) and is actively seeking both urban and suburban sites. The Seattle-based chain has signed a number of deals in big-box space vacated over the past 18 months. For example, Nordstrom Rack recently inked a deal for 36,000 square feet of former Circuit City space on Chicago’s Magnificent Mile.

Neiman Marcus is expected to put most of its expansion emphasis behind its outlet concept, Last Call, over the next two years, and opened three new Last Call stores in 2009.

Saks Fifth Avenue opened a number of Off 5th stores over the last half of 2009, including new stores in the Cincinnati, Los Angeles, Raleigh/Durham, Reno, San Antonio and San Francisco Bay markets. One new Off 5th store is planned in the Dallas market and as many as four more stores will likely be added this year. Saks plans on rolling out a minimum of five Off 5th stores annually over the next few years.

Lord & Taylor is also getting into the mix, with a 15,000-square-foot outlet store slated for the Jersey Gardens Outlet Mall in Elizabeth, NJ.

“Ghost boxes” and “black hole space” join the retail lexicon in reference to creative use for such dark spaces: The collapse of big-box retailers such as Circuit City and Mervyn’s is allowing for creative re-use of empty big-box spaces, including conversions into theaters, libraries, even indoor go-kart facilities.

Cheaper rents translate into more urban activity: Urban storefront rents have dropped across the board, and consequently, many retailers previously priced out of such markets are uncovering opportunities, especially in New York City, where street-front rents have dropped as much as 40%.

Dollar Daze: Nowhere in the retail world is seeing more growth than from the dollar stores. Dollar store chains such as Dollar General, Family Dollar and Dollar Tree should emerge as the strongest growth sector in retail this year where as many as 1,500 new dollar stores may be opening over the next year.

Additional retail expansion plans can be found on the study’s appendix at http://bit.ly/d4Broz.

Like this? Share it!