Taken a gander at the news lately?
Seemingly every second headline touts the closure of yet another retailer. Either they’re “downsizing” (or “rightsizing” in the politically correct vernacular) and shuttering locations. Or they’re closing up shop altogether.
Here are some of the more notable retailers currently “rightsizing” their operations or on their way out for good…
- Toys R Us – 735 locations
- Abercrombie & Fitch – 60 locations
- Foot Locker – 110 locations
- Best Buy Cellular Stores – 250 locations
- JC Penney – 8 locations
- Sam’s Club – 63 locations
- Macy’s – 11 locations
- Michael Kors – 100 locations
- Sears & K Mart – 103 locations
- J Crew – 50 locations
- Gap & Banana Republic – 200 locations
- Teavana – 379 locations
- Ann Taylor, The Loft, Dress Barn and Lane Bryant – 268 locations
- Nine West – 70 locations
Obviously, this is bad news for a large segment retail real estate. But notice something all of these businesses have in common?
None would occupy a typical strip center. Malls, for sure. Power and lifestyle centers, too. And probably large-scale regional strips as well.
But you wouldn’t find any of these businesses in your everyday urban shopping center.
And this shift, believe it or not, is GREAT news for shopping center landlords like you!
Why, you might be asking?
Well, a number of economic, societal, and business development factors are at play, which is not only enhancing the value of strip center real estate but ensuring the stability of this asset for years to come.
Specifically, here are five key elements that make this the best time in history to invest in strip center real estate…
1. Demand for Services
Much of “traditional retail,” which has depended largely on selling physical products, is disappearing.
But guess what’s not diminishing? The public’s demand for services, a demand that’s ramped up like never before.
Nail salons, massage, tax prep, insurance, tutoring, child care + early child education, pet grooming + kennel services, veterinary clinics, urgent care, dental clinics, optometry, martial arts studios, fitness and personal training, restaurants, cafes, bakeries, and the list goes on and on.
And where do the vast majority of these businesses locate?
Your good ole traditional urban strip center!
And speaking of restaurants…
2. Eating Out is Outpacing Grocery Store Sales
In 2016, for the first time in history, gross restaurant sales exceeded grocery store sales.
In other words, the nightly “menu plan” for many American families has become picking from a deck of quick-serve takeout menus.
And once again, where do most quick-serve and fast casual restaurants locate?
You guessed it, retail strip centers!
3. Strip Centers Have Already “Rightsized”
Once upon a time, urban strip centers hosted their share of tenants selling physical products.
But as department stores, and large-scale discount stores, like Walmart, Target, TJ Maxx, Marshalls, Ross and others crept into the retail landscape in the ‘80s + ‘90s, small format retail stores selling physical products were steadily edged out.
And with the rise of internet sales beginning in the early aughts, by the end of the first decade of the new millennium, product sales based retail was in the serious death spiral.
Thus, strip centers have already weathered this contraction and reinvention storm currently facing shopping malls and other large format shopping centers. And strip centers have not only weathered the storm but righted the ship and become more profitable than ever!
4. Smaller Spaces + Reasonable Rents = Lower Attrition
Looking at the list of failing retails above again, what’s another common thread among these businesses?
All either occupy physically large sites or are positioned in high-profile locations. Two factors that demand high rents.
So, of course, when sales fall off, it’s impossible to meet those significant financial obligations. And business either downsize or fold up their tents for good
Strip centers units, on the other hand, are far smaller and typically situated in urban locations that don’t command the same “prestige” as shopping malls. Also, on average, strip center rents are far less expensive.
So, while sales may ebb-and-flow, a bad month, or even a bad couple of months, isn’t likely to sink a tenant’s entire operation.
5. Reasonable Rents = Easier to Lease
When JC Penny’s vacates a mall, abandoning 50,000 SQFT, what’s a landlord to do? The odds they’re going to find a replacement tenant willing to take even a fraction of that space or pay anywhere near the same rent are slim to none.
So, not only has the landlord lost that income, a huge hit to their bottom line, but those dollars may never be replaced.
Meanwhile, when a cellphone tenant paying $2.50 per foot vacates a 1,200 SQFT space in corner strip center? It will probably only take a matter of months to replace that tenant. And in all likelihood, the new rent will be higher.
The Bottom Line? Strip Centers Are a Secure Investment…
The headlines are genuine. There is real carnage in the retail real estate industry at the moment. And there’s likely to be some serious pain for many involved.
But strip center real estate has already weathered this storm. Retail strip centers have adapted to the “service economy.” Locations were “rightsized” years ago. And most strip center landlords aren’t facing financial ruin if a tenant goes out, because the economic hit is minimal, and the income imminently replaceable.
The Key to Maximizing Your Strip Center Investment?
Effective leasing and property management.
Quickly filling vacancies with qualified tenants that synergize with existing operators is key to maintaining your income stream.
While ensuring your property remains in good condition and fostering positive tenant relations is critical to keeping tenants in place.
Need Leasing + Property Management Support?
CBM can help! Visit our Services page to find out more about our retail leasing + property management services.