Challenging Months Ahead For Shopping Center Owners


August 12, 2008

By Poonkulali Thangavelu – National Real Estate Investor

As the number of retail store closings continues to rise, landlords in the retail sector should brace for falling rents and declining occupancy. Property & Portfolio Research expects the final tally of store closings for the year to climb to more than 6,000, compared with 4,600 closings in 2007. As of mid-August, Boston-based PPR reports 5,300 closings.

The breadth of the closings has caught the industry off-guard. “The industry believed that you were just going to see the Home Depots of the world, the furniture stores, the ‘Granite counter tops are us’-type retailers get hurt. They are surprised to see how quickly it spread to other types of retailers,” says Suzanne Mulvee, a senior real estate economist with PPR.

Of the store closings tracked by PPR, 46% are located in malls and about 43% in strip centers, with the remaining stores tied to big-box retailers. The current retail vacancy rate nationally is 11.8%, according to PPR. The firm forecasts the vacancy rate to rise to approximately 13% by the end of 2008 and 14% by late 2009.

Considering the softer occupancy, PPR expects rent increases in the retail sector to decline 1.7% this year, which means landlords will have to give back the 1.7% rent growth seen in 2007. PPR forecasts retail rents to drop 0.5% in 2009.

One beneficiary of the rising number of store closings is Lake Success, N.Y.-based Excess Space Retail Services, which helps retailers restructure leases and dispose of unwanted properties. Excess Space expects to work on 3,000 or more store lease restructurings this year, a 50% increase from the 2,000 restructurings the company worked on last year.

“Business is booming. It will be very robust for us this year and for sometime into the future,” says Michael Weiner, president and CEO of Excess Space.



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