Owners and Retailers Adjust to Sagging Economy

The ailing economy and skyrocketing fuel and transport costs are forcing the big-box retailers to rethink their aggressive expansion plans. For example, Starbucks, the iconic coffeehouse giant, recently announced that it was closing 600 under-performing stores, many of which have only been open for two years. Company execs have also decided to cut back on the number of new store openings for the 2009 fiscal year. In addition to shaving expansion plans, retailers are experimenting with leaner, more efficient prototypes, fitting their stores into smaller spaces and aggressively negotiating rent reductions for stores that are falling short on performance.
In an effort to reduce inventory and manage expenses, Gap Inc., the largest U.S. retail clothing chain, closed several of its stores and merged the kids and baby lines into the adult lines to better utilize the 40 million square feet of leased store space. The jury is still out on whether the creative approaches will be successful, but experts are certain that the bold moves will impact property owners.
Property & Portfolio Research, a Boston-based real estate research firm, expects retail store closings for 2008 to top the 6,000 mark. Overall, analysts estimate that owners will end up giving back the 1.7 percent growth in rents that they enjoyed in 2007.
Reis, Inc., a New York research company that tracks the nation’s top metropolitan areas, says that the vacancy rate for regional malls is the highest since 2002, at 6.3%. New centers that were opened in the first half of this year were 62.8% occupied, compared to 72.1% of the centers that opened in 2007.
The strip mall vacancy rates is also at its peak, at 8.2 percent. The 0.4 percent decline in the average asking rent from the first quarter to the second quarter of 2008 represents the first drop in this decade.

Source: NY Times