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04/28/2017

Report: Plenty of good options for filling vacated department store spaces

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As department stores trim their portfolios, the nation’s malls are being transformed.



Shoppers can expect to see more restaurants, entertainment venues, grocery stores and even other department stores take up space, according to a new report from JLL, Empty to Alive: The Next Use for Department Store Space.



There is a lot of space to fill. More than 300 department stores are closing this year, putting about 36 million sq. ft. of vacant space back on the market, according to the report.



“In the United States nearly half of shopping centers’ gross leasable area (GLA) is devoted to department stores, compared to less than one-third of GLA in the United Kingdom,” said James Cook, director of Retail Research at JLL.



“Retail space isn’t overbuilt, it’s under repurposed. But that’s changing fast.”



Mall owners are actively looking to transform anchor space and it’s paying off, the report found.



“Historically, rents paid by department stores have been extremely low – usually less than $10 per square foot,” added Greg Maloney, CEO of JLL Retail. “As they become vacant, owners have a new opportunity to re-tenant the space and create a significant financial boon.”



For example, Seritage Growth Properties, which has 266 properties originally leased to Sears Holdings, is now redeveloping and re-leasing space originally held by Sears and Kmart stores to new tenants. JLL’s report revealed that Sears was paying on average about $4.40 per square foot across the portfolio. But through repurposing and creatively rethinking about space, Seritage has attracted new tenants who pay on average $18.55 per square foot, or 4.4 times the previous rental rate. (As of March 2017, apparel tenants, restaurants and entertainment venues have made up nearly two-thirds of the new leases).



JLL’s report found that several large-format retail concepts fit well into former department stores:



• Food: While traditional mall food courts were designed merely as pit stops for consumers to quickly refuel and get back to shopping, restaurants are quickly becoming destinations, and anchors in their own right. The Galleria in Houston is adding a Nobu and Fig & Olive that will occupy a portion of what was once Saks Fifth Avenue. At King of Prussia Mall in suburban Philadelphia, Outback Steakhouse and Yard House have leased part of a former Sears.



• Supermarkets: It would be hard to find many supermarkets in enclosed malls 10 years ago, but consumer expectations are changing. According to a GGP 2017 survey, nearly 50% of mall shoppers indicated they would like to see a grocer in their local mall.



• Entertainment: Along with dining, entertainment tenants are playing a bigger role in shopping centers, with a growing number of theaters are moving into former department store space. AMC Theaters will occupy a former Saks Fifth Avenue space at The Shops at Riverside in Hackensack, New Jersey, and a Harkins Theaters recently opened in a former Nordstrom space at Los Cerritos Center in Southern California. Dave and Busters, which combines dining with a variety of attractions, has opened three locations in the Seritage portfolio.



Other unique types of entertainment are finding their way into vacated department store spaces. At the Florida Mall in Orlando, a Crayola Experience opened in a portion of a former Nordstrom. Kidzania, an indoor kid’s theme park where children can try out different jobs, is expected to open its first U.S. location this year, in Dallas this year.



“Beyond dining and entertainment, categories like fast-fashion, cosmetics, sporting goods, home furnishings, and even department store operators like Von Maur are taking space in former anchor locations,” said Holly Rome, director of national retail leasing, JLL. “The best use for an empty anchor will vary and be dictated by the demographics and lifestyles of the surrounding community, but the many options available might come as a pleasant surprise.”



JLL is the largest third-party retail property manager in the United States with more than 1,000 centers, totaling 125 million sq. ft. under management.