Even Developers Agree The U.S. Has Way Too Much Retail Space
“There’s about a billion square feet of retail space that needs to go away, that needs to be converted, for the market to get healthy,” CoStar director of retail research Suzanne Mulvee said at Bisnow’s National Retail Series event in Manhattan Tuesday morning.
“If you accept the premise that the pain in the market is about oversupply and not all about e-commerce, I think it creates optimism, and it starts to make all these closures make sense,” she said. “JC Penney owns a lot of stores where nobody lives. So these stores should close, and they will continue to close.”
The oversupply is not widespread. In the top markets in the country, Mulvee said, there is an acute lack of product as retailers increasingly are focusing their efforts on population centers with lots of disposable income. But in the majority of the country, malls and shopping centers are losing retailers with alarming frequency, and there is little hope of finding replacements.
Many of the country’s biggest retail landlords are selling off scores of properties not in the country’s major urban markets.
National REITs like Kimco and RPAI have either sold or are trying to sell all of their properties outside of the 25 most populous metropolitan regions. If communities do not fit in that category, they are not considered a viable retail option.
InvenTrust Properties Corp. controls 15M SF of retail space, but the publicly traded real estate company has shrunk its geographic footprint. At its peak, it operated in 42 markets, CEO Tom McGuinness said. Now, its holdings are concentrated in 20 cities in the U.S., largely high-growth Sun Belt cities like Atlanta, Orlando, Raleigh, Dallas and Houston.
"We have one of the largest retail centers in Sioux City, Iowa, but we don’t necessarily want to be in Sioux City, Iowa," McGuinness said.
“We have a center that my father bought — I don’t know why he bought it — in the middle of nowhere, Montana,” she said. “No one wants it. We don’t want it, we can’t sell it, the town doesn’t want it."
“There are massive areas that should be razed,” she continued. “I don’t think there’s the political will to deal with that. As a country we have a massive amount of excess space, and we don’t know how to get rid of it or repurpose it.”
In certain markets, when properties have lost tenants to bankruptcy, it has been a blessing in disguise. Olshan owns a shopping center in Cobb County, Ga., outside of Atlanta, that had three tenants go belly-up: Circuit City, Golfsmith and The Sports Authority. Olshan repurposed the Circuit City space into an Old Navy and two restaurants. The rate of return on the property tripled, she said.
“Three retailers closed. Oh, what bad luck, right?” she said. “But the rents go up and up and up.”
But Olshan also leases space to a Jo-Ann Etc., a massive space with long, narrow aisles filled with arts and crafts products. If that store is forced to close, it will not be so easily replaced.
“That keeps me up at night,” Olshan said. “I don’t know what I would do … because it’s such a tough space.”
Some landlords are able to fill vacant product with lower-rent retail tenants or repurpose it into other uses. But as retailers and retail property owners chase greater profits online and in major cities, most of the United States is left with hundreds of millions of retail square footage that no one appears to want.