Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/873170
www.REBusinessOnline.com Western Real Estate Business • September 2017 • 49 THE RETAIL REAL ESTATE LANDSCAPE SHIFTS GEARS An overview of the comings and goings of traditional department stores, discount stores and the tenants swooping in to fill vacant space out West. By Lee S. Segal I t has been in the news recently that traditional department and smaller retail stores are closing more than 3,000 locations due to changes in con- sumer purchasing habits and econom- ic factors. The most common reasons given for these closures were low vol- ume stores, unfavorable lease obliga- tions, downsizing and restructuring. The Sears in Santa Monica, Calif., closed its doors in April. The store was in business at that location for more than 50 years. The owners of the 100,600-square-foot historical building are planning a remodel with mixed-use retail and creative office space. Both Sears and Macy's are sell- ing some of their commercial real es- tate and leasing it back from buyers to provide income for their restructur- ing. Sears Holdings Corporation, which also owns Kmart, created a REIT called Seritage Growth Properties in 2015 to raise $2.5 billion in cash. Sears sold 254 retail real estate store proper- ties to Seritage and leased them back. Sears leases 224 stores, including Kmart stores, from Seritage. The chain also noted in January that it would close 150 stores due to a decrease in sales in 2017. Macy's earned $673 million by sell- ing retail real estate in 2016. The com- pany also sold its 220,000-square-foot Westside Pavilion location in Los An- geles for $50 million this year. About 34 Macy's stores will close in 2017. Major department store companies have been struggling for the past few years. However, smaller traditional retail stores are also closing locations. The following are just a few compa- nies that have announced store clos- ings recently: Payless ShoeSource, Foot Locker, Inc., Guess, American Eagle Outfitters and Abercrombie & Fitch. In contrast to the poor earnings of traditional retail stores in the past sev- eral years, online retailers like Ama- zon and off-price brick-and-mortar store earnings have been increasing, and they are all expanding. Amazon has opened retail book stores all over the country. They now have five open in the U.S., including one in San Diego. The online retail gi- ant is planning to open seven more book stores in the U.S., two of which will be situated in the San Francisco Bay Area. Off-price retail department stores like T.J. Maxx, Marshalls, Ross and Burlington are all opening new store locations in 2017. TJX, which owns T.J. Maxx, Marshall's, HomeGoods and other off-price stores, has more than 2,200 T.J. Maxx and Marshalls stores in the U.S. The company plans to open 65 new stores this year. This is in addi- tion to the 80 new HomeGoods stores that will be added to the 579 existing HomeGoods stores . TJX also reported in February that it plans to open a new chain of home good stores to comple- ment its existing HomeGoods chain. Burlington plans to open 30 new stores in 2017. The company is looking to lease spaces between 40,000 square feet and 50,000 square feet for retail space in power centers, strip centers, freestanding, downtown and Central Business District locations. They are looking for middle-income areas with a population of 200,000 or more, ac- cording to the Burlington website. Ross Dress for Less, which also owns dd's DISCOUNTS, announced its plans in March to open 90 new lo- cations in 2017. The off-price retailer, based in Dublin, Calif., has 1,561 stores nationwide. These off-price department stores often lease less space than their tra- ditional counterparts in low-traffic locations where rental rates are usu- ally lower than mall areas. They most likely won't lease a closed depart- ment store in Los Angeles. As a result, large department store vacancies are difficult to fill unless the building is demolished. However, some of these empty department stores situated in high-traffic areas can be repurposed as health clubs due to the amount of parking spaces mall locations have to offer. Architects in some areas are busy designing health and sports club con- versions. Although, there is a limita- tion on how many health clubs can uti- lize this large amount of space within a geographical area, it is now common to see these clubs in shopping centers where they never previously existed. One health and fitness tenant taking advantage of these conversions is 24 Hour Fitness. The gym opened a lo- cation in Westfield MainPlace mall in Santa Ana, Calif., that was partially converted from a Macy's department store in 2015. Smaller retail spaces in high-foot- traffic areas don't have the problem department stores have. They can be reused by many different companies. However, many closures in one year can drive down the value of the commercial real estate property, making this a sensitive is- sue that must be tackled on an ongo- ing basis to ensure a landlord doesn't wind up with multiple vacancies in the same center, or that too many like- minded users end up flooding one area. Lee S. Segal, President and CEO, Segal Commercial Properties in Los Angeles 24 Hour Fitness opened a new location in Westfield MainPlace mall in Santa Ana, Calif., which was partially converted from a Macy's department store in 2015. Segal Visit Us At ICSC Western Conference and Deal Making Los Angeles Booth# 908