Retail property owners continue to struggle to replace large tenants lost during the recession, with notable progress coming among class A shopping centers and the rest of the field lagging.
There are currently 59 big-box vacancies—defined as spaces 20,000 square feet or larger—in Orange County, according to a recent study by CBRE. They are spread over 55 centers, and combine to account for 2.3 million square feet.
About 1.6 million square feet of big box retail has been absorbed in the past two years, with much of that snapped up in class A centers.
Big-box space in class A centers was at a premium prior to the recession. The downturn led a number of big-box retailers with the wherewithal—Wal-Mart, Kohls, some grocery chains and gyms, among others–to take advantage of vacancies left by Circuit City, Mervyns and other chains that went bankrupt.
Most of the class A space has been absorbed here, with 84% of the remaining big-box vacancies in class B or class C centers.
It will likely be difficult to lease the remaining sites, and landlords might need to come up with alternative uses.
There are many pessimists when it comes to the future of big-box retailing. They point to defunct chains such as Borders as examples of retailers facing threats from online sales.
Others believe bricks and mortar retailing is an ingrained part of modern society and intricate part of its future.
Tenants and landlords will have to adapt new realities, in any case.
Retailers must figure out a way to look beyond their typical prototype. They must alter their formats to integrate online sales with their physical stores. They must find a way to relocate and reposition stores to take advantage of their best demographic.
Landlords should seek retail tenants that are willing to adjust or seek alternative uses for their properties.
In a recent Harvard Business Review article, Ron Johnson the chief executive of JC Penney, and the man credited with inventing the Apple Store, said: “It’s not department stores’ size or location or physical capabilities that are their problem. It’s their lack of imagination—about the products they carry, their store environments, the way they engage customers, how they embrace the digital future.”
Email chris.gentzkow@cbre.com for a copy of the Orange County Big Box report.
Gentzkow is a vice president in the Newport Beach office of CBRE and co-author of CBRE’s Orange County Big Box Retail Report.
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