Mixed Futures Await Vacant Single-Tenant Stores

The demise of familiar national brands like Circuit City, Linens ’n Things and Mervyns is having as big an impact on single-tenant leasing and investment as it is on the retail sector itself. Of the 73,000 store closings that the International Council of Shopping Centers estimates will take place during the first half of 2009, hundreds will involve net-leased properties. That, in turn, poses the challenge of re-tenanting properties ranging in size from a few thousand square feet to big-box locations of 100,000 square feet and up. On the whole, stores with small footprints may be relatively easy to re-tenant. Rite-Aid Corp. offers an example of a national chain that is closing or selling many small-scale locations in response to economic challenges. In 2008, Rite-Aid shuttered 181 stores in response to losses that reached $243 million in the third quarter alone. An announcement of more closings may come this Thursday, when Rite-Aid releases its fourth-quarter 2008 report. A typical Rite-Aid store of 14,000 square feet or so that is located on a well-trafficked corner may appeal to dollar stores and other value retailers, noted Mark Taylor, a vice president & net-lease specialist based in the Philadelphia office of Marcus & Millichap Real Estate Investment Services Inc. Some single-tenant big boxes are also drawing interest from other retailers. As Macerich executive vice president Randy Brant told CPN earlier this month, Kohl’s Corp. and Forever 21 Inc. are each opening 11 new stores at former Mervyns locations the retail real estate firm acquired last year. Forever 21’s strategy is especially intriguing, since the value fashion chain is using the Mervyns locations to roll out its department store-size format. Although many former Mervyns sites were quick to find new life, Taylor speculated that the next chapter for many big boxes will unfold only over the next four or five years. In part that is because few retailers appear to share the appetite for expansion displayed by Kohl’s and Forever 21. “You’re not going to find replacement retailers for 100,000-square-foot boxes,” he said. If the past is any guide, some old net-leased stores may find new uses ranging from houses of worship to ice-skating rinks. But Taylor predicted that owners finding no takers for those buildings after a few years may gravitate to the last resort—tearing the stores down and starting over again.