More than half of the department stores currently anchoring U.S. malls will close by the end of 2021, predicts a new report by real estate research firm Green Street Advisors.
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The coronavirus pandemic will be the proximate cause for most of the closures, but not the underlying cause, Green Street says.
"Many mall-based tenants with weaker liquidity positions ... and/or broken business models will struggle to come out on the other side. COVID is going to pull forward several years of retailer fallout," a new report reads.
The loss of so many stores will accelerate the demise of "many malls," the report says, without venturing a number.
“The only certainty is that there will be far fewer department stores in the future and malls will need to adapt,” Green Street analyst Vince Tibone, one of the report's authors, told CNBC.
Redevelopment of vacant anchors might be possible in some cases, but the report says that simply trying to ride out conditions with the remaining cash flow would likely be an economically rational decision for many Class-B malls.
JCPenney in particular is on the edge of a bankruptcy that will probably result in its liquidation, the report says, characterizing the retailer's business model as "broken prior to COVID."
All together, 560 malls stand to lose JCPenney anchors should the department store disappear, with the majority in Class-B and Class-C properties. The retailer occupies nearly a fifth of all mall anchor space (19%), according to Green Street, with Macy's a close second (18%). The once-sizable Sears only takes about 4% of all anchor space.
Not everyone is persuaded that JCPenney is going to vanish, however. Morgan Stanley senior analyst Walter Loeb told Bisnow that one of the retailer's large suppliers, vendors or national mall operators could offer it a financial lifeline.
Green Street also cited Neiman Marcus as a strong possibility for bankruptcy, partly because of a high debt load. But the report posits that a Neiman Marcus implosion would be less of a problem for malls, since most of its locations are in Class-A properties where redevelopment is more likely once the pandemic has abated.
As for Macy's, Green Street notes that, as Bisnow has reported, the retailer will probably be able to scare up the debt financing it needs to survive. Even so, the brand will likely see more than the 125 closures the company said it is planning over the next three years.
The impact for mall landlords won't be confined to a surge in vacant department stores, but will also include the triggering of co-tenancy clauses by many inline tenants, the report says. Under the terms of such clauses, tenants pay less rent, or are able to break their leases, if located in a property with multiple anchor vacancies.
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