Retail Owners Not Sweating Party City, BB&B Closures With Tenants 'Frothing' For Space
A few years ago, news about another big-box retailer filing for bankruptcy would create anxiety among shopping center owners concerned about how they would fill the vacancies. That dynamic has now been turned on its head.
Suburban landlords today are benefiting from record-low vacancy rates and have more tenants looking for space than they can accommodate in their properties, several owners said Thursday at Bisnow's D.C. Region Retail event, held at National Harbor.
This makes the latest wave of bankruptcy-related closures from Party City and Bed Bath & Beyond seem less like losses and more like opportunities to bring in new tenants, the owners said.
"There’s such a paucity of space and the demand is so great," MCB Real Estate Managing Partner Drew Gorman said. "I have no concerns that Bed Bath & Beyond and Party City won't be absorbed."
The retail market has experienced a strong recovery over the last two years after being devastated by the pandemic, and a year-end report from Cushman & Wakefield found nationwide vacancy fell to 5.7%, its lowest mark since 2007. The suburban retail market has outpaced urban shopping districts in many regions as far fewer people commute downtown on a daily basis.
This recovery hasn't made retail bankruptcy issues disappear, but it has made them less painful for landlords.
Party City filed for Chapter 11 bankruptcy protection in January, and it has revealed more than 40 stores it plans to close as part of the restructuring process. Rappaport President Henry Fonvielle said his firm, which owns and manages retail space across the mid-Atlantic, has three Party City locations in its portfolio.
"We don't have any boxes for rent, so we're not going to have a lot of sympathy for their dilemma," Fonvielle said of Party City. "We’ve got lots of other people that want to be in those spaces with maybe a more compelling tenant mix. So it’s all about the tenant mix for us, we’re always trying to polish the brand of the property. I think there’s going to be opportunities there."
Macerich Executive Vice President of Leasing FK Grunert, whose firm is one of the largest U.S. mall owners, said he agreed with Fonvielle's point, and he added that customers also aren't too worried about Party City closing stores.
"I think the customer has already figured out where to go to find that product elsewhere should they need to have a party," Grunert said. "It’s sad to see them go, but if you can't figure out a way forward, it's time to move on."
Owners also see opportunities to backfill the big-boxes that Bed Bath & Beyond is bailing on. The retailer this year has continued to reveal more of the roughly 150 stores it plans to close as it inches toward a potential bankruptcy filing.
"The more interesting one frankly was Bed Bath & Beyond," Gorman said. "It was like a feeding frenzy of retailers who are healthy who want space are like frothing because of all the locations that have come in."
Gorman, whose Baltimore-based firm owns retail and mixed-use properties across the region, said he has seen department store retailer Burlington looking at a large number of the former Bed Bath & Beyond spaces. Reports have also emerged that Trader Joe's, Sephora, T.J. Maxx, Dick’s Sporting Goods and HomeGoods are looking at Bed Bath & Beyond spaces.
In prior years, landlords would have had concerns about the ability to absorb those spaces, Fonvielle told Bisnow in an interview after the event.
"There were landlords who were nervous about losing boxes over the last five years because it's like, 'Who's going to fill them?' But now we have so few boxes that we're not afraid to take a vacancy," Fonvielle said. "We're not afraid of taking a vacancy because our occupancy is so high."
Peterson Cos. President of Retail Paul Weinschenk, whose firm owns National Harbor and a host of other large retail properties in the D.C. region, said at the event Peterson has a number of shopping centers that are at or near 100% occupancy.
"The signs are really good in terms of the activity we're seeing," Weinschenk said. "There are times we wish we had a bigger ability to engage with tenants to do deals, but the good news/bad news is we don’t have space in all those cases to be able to make those deals."
For some properties, Weinschenk said the landlord can take the initiative to free up spaces where it sees an opportunity to refresh its shopping centers with more modern, popular concepts.
"In some cases we’re looking forward to actually with intention — where we see an opportunity with certain things we're doing in those projects — to step back from some older tenants over time and bring in a new wave of tenants who are more relevant to consumers," he said.
The retail concepts that are in expansion mode include active offerings from pickleball courts to boutique gyms, and new experiential concepts from traditional retailers like Dick's Sporting Goods' House of Sport brand, experts said.
Macerich's Grunert said he is also seeing demand from some apparel and beauty brands. He said Macerich in 2022 had its best leasing year on record, signing 974 leases totaling around 3.8M SF.
"Five Below, Ulta, I never thought I’d see them in some of our premiere assets, but I’d put them in every center based on the traffic they generate," Grunert said.
Another way to inject new life — and property value — into shopping centers that have vacancies is to add a grocery store.
Fonvielle noted in the interview that people go to their local grocery store multiple times a week, whereas visits to retailers like Bed Bath & Beyond are much more irregular.
“If you have a non-food-anchored center, and you bring in a Lidl or an Aldi, you’re really adding value, but also your center trades at a different cap rate,” Fonvielle said. “So there’s two reasons for that: generating traffic, which is going to help your other tenants, but also when you go to get your refinancing or sale, you have a grocery anchor, which investors like.”