Friday, December 19, 2008

Retail Space to be Vacated

by Bill McBride on 12/19/2008 09:27:00 PM

Back in October, the WSJ reported that mall vacancy rates increase sharply in Q3:

For strip centers and other open-air shopping venues, the vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, according to Reis. Meanwhile, retailers' closures outpaced new leases by 2.8 million square feet in U.S. strip centers in the third quarter, the third consecutive quarterly net decline. It is the first nine-month period of so-called negative net absorption since Reis started tracking the data in 1980.
...
The vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, to its highest level since late 2001, according to Reis.
Mall Vacancy Rate Click on image for larger graph in new window.

This graph shows the strip mall vacancy rate since Q2 2007. Note that the graph doesn't start at zero to better show the change.

But clearly it is about to get much worse.

Hat tip wc for the following!

Pre black Friday closing & liquidation announcements have come from Shoe Pavilion, Steve & Barry's, Gordman's, Radio Shack, JoAnn Fabric, Boscov's, Bennigan's, Winn Dixie, Office Max, Comp USA, Pier 1, and Sigrid Olsen. Of the 2 billion square feet of community/neighborhood retail space in the largest 76 metropolitan areas, vacancy has increased by 0.75% so far in 2008 (source: REIS).
This list isn't exhaustive - we could add other retailers closing stores, filing bankruptcy or going out of business such as Sharper Image, Starbucks, The Disney Store, Wilson's Leather, Talbots, Ann Taylor, Bombay Co. and more.
In the last 2 months the number and severity of announcements from retailers has gotten worse. Based on press releases, and an estimate of average store size, I believe these 9 retailers [alone] will be leaving about 47 million square feet of space:
Retail to be vacated From the WSJ: Linens 'n Things to Be Liquidated 10/14/2008

From MarketWatch: Mervyns Closing all Stores After 60 Years in Business 10/30/2008

From the Consumerist: Santa's Not Coming: All KB Toys Stores To Be Liquidated And Closed KB Toys 12/11/2008

From the Tribune-Democrat: Value City closes 11/25/2008

From the WSJ: Circuit City Seeks Haven In Bankruptcy Protection 11/11/2008

From Costar: Bally Total Fitness Files Bankruptcy, Again 12/5/2008

From the Press Telegram: Shoe Pavilion shutting down all 64 stores 10/20/2008

From the WSJ: U.S. court OKs Tweeter Chapter 7 liquidation 12/5/2008

From the Times Dispatch: Judge allows RoomStore purchase of Mattress Discounters 12/4/2008

Retail to be vacated
The percent of total retail space is estimate based on 2 billion square foot number; this is only the 76 markets covered by REIS (2007 Q3 = 1,965,651,000. 2010 forecast = 2,026,266,000).

If 3/4 of the closing stores are in the top 76 metro areas defined by REIS, these 9 retailers alone will increase vacancy by 1.8% (compared with 0.75% during 2008).
CR note: this is just a rough estimate - and many analysts are expecting a number of additional retail bankruptcies in January - but it is pretty clear the mall vacancy rate will rise sharply in 2009.

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