Mall Tenants Seek Shorter Leases As America's Relics Of The 80's Teeter On The Brink

As if things weren't bad enough for America's mall owners, what with the having to filling their retail space with high schools, grocers and churches, it seems that retailers have grown so uncertain about the future of these 1980s relics that they're only willing to sign 1-2 leases these days.

As Bloomberg points out this morning, leases renewals used to be 5-10 years in length but are increasingly only being signed with 1-2 year terms.  Meanwhile, thousands of stores are closing each year and it's only expected to get worse over time.

After more than a dozen bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two -- down from five to 10 years.

 

“You’re certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal,” said Andrew Graiser, head of A&G Realty Partners. Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them “with a much closer eye than they did before.”

 

Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of Americas retail research for commercial broker Cushman & Wakefield -- more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year.

 

“Everyone’s trying to figure out where the bottom of the market’s going to be,” Brown said. He estimates it could occur in 2018 or early 2019.

 

Not surprisingly, retailers are finding it difficult to sign long-term leases in an environment where 26% of malls around the country are expected to close their doors over the next five years.

Further complicating the lease-length dilemma is the question of which shopping centers will still be around in a decade. Cushman & Wakefield’s Brown sees about 300 of 1,150 U.S. malls shutting down in the next five years.

 

Perry Mandarino, senior managing director and head of corporate finance at B. Riley & Co., predicts that retail bankruptcies and restructurings will further accelerate in 2018. Some of this will be the result of a long-overdue shakeout of the surfeit of U.S. store space, but the downturn is also compounded by shifts to online shopping and consumers spending on experiences rather than physical stuff, he said.

Meanwhile, landlords are trying to fight back, though it's a fairly difficult task both arms tied behind their backs.

Landlords “have their backs against the wall, so they’ve been fighting back, hard,” he said. “What you have is a game of chicken up to the end.”

 

“With all this excess inventory, landlords are trying to do whatever they can to keep malls occupied,” Agran said. “The more empty spaces, the more difficult it is to attract new tenants.”

Frankly, it's shocking that Abercrombie wouldn't jump at the opportunity to scoop up some prime square footage in this mall...it already has the Chili's awning and everything.

Mall

Comments

CheapBastard Fri, 06/09/2017 - 22:06 Permalink

Oil price rout slams Houston's commercial real estate market (July 2016) The prolonged slump in oil prices has slammed the office market in the U.S. energy industry hub of Houston, where more than 10 million square feet is available and vacancy rates are at their highest in 20 years, the real estate firm CBRE reported. Thousands of energy industry employees have lost jobs and companies have slashed their capital budgets during the steep slide in crude prices, which are still down more than 50 percent since 2014. http://www.reuters.com/article/us-property-texas-energy-idUSKCN0ZN2LY Much worse now I heard from friendsliving there. Lots of empty brand new buildings along I-10.

Peak Finance Fri, 06/09/2017 - 22:13 Permalink

Malls are a perfect reflection of the banality of modern american middle-class life. Dead, joyless, monochromatic, full of shuffeling zombies, aimless, pointless, 100 stores and literally not a single one selling a single fucking thing I need for my life, how do they make money?It's patethic really. 

Ms No Peak Finance Fri, 06/09/2017 - 22:46 Permalink

I went to two malls recently trying to find shorts that are larger than the average pair of underwear and some light shirts that aren't see-through.  I went to Fashion Square mall in Scottsdale which is super nice and another average mall.  Summer normally slows down here some but Fashion Square looked deader than a doornail, more so than normal.  I went to Nordstroms and there were some people in there.  I saw a lot of sales racks and I looked at one with skirts and was in awe at how ugly they were.  When I checked the tag on one it $3,000.oo.  Good luck with that. White House Black Market was the only place that respectable clothing that wasn't ridiculously priced and didn't look like something a carnival whore would wear.  At the other mall it was depressing, exactly as you described, and they essentially had nothing I wanted.  I ended up buying a couple pairs of shorts at NY and Company because I tired of being in that depressing place.  Almost everybody had 40% off or better sales.  I didn't see anybody showing up for them except women going through boxes of junk at Victoria's Secret.  That place is super low quality.Also the overly aggressive Jews that sell things at kiosks seriously piss me off.   I literally avoid whole sections of malls because of those pandhandler salesman, trying to push their weird hair oil and dead sea whateverthehell.  One grabbed at me a couple years ago and I punched him in the shoulder.  I seriously did that.  I am so tired of their mall kiosk aggression.  I told him that he should think twice before accosting women in the mall, so he didn't do anything about it.  Those people cost them a ton of money but that probably doesn't matter now. 

In reply to by Peak Finance

christiangustafson Fri, 06/09/2017 - 22:15 Permalink

https://www.youtube.com/watch?v=lOEIRI5HSuQ"(Nothing But) Flowers"Here we standLike an Adam and an EveWaterfallsThe Garden of EdenTwo fools in loveSo beautiful and strongThe birds in the treesAre smiling upon themFrom the age of the dinosaursCars have run on gasolineWhere, where have they gone?Now, it's nothing but flowersThere was a factoryNow there are mountains and riversyou got it, you got itWe caught a rattlesnakeNow we got something for dinnerwe got it, we got itThere was a shopping mallNow it's all covered with flowersyou've got it, you've got it...

seek Fri, 06/09/2017 - 22:18 Permalink

Check out the "Dead Mall Series" on youtube -- I think someone here at ZH turned me onto it. It's amazing and depressing at the same time. We're definitely in a new era with respect to retail.