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Overlooked Retailer Risk Revealed in Green Street Mall Tenant Turnover Analysis
The retail sector continues to endure a tumultuous time, with retailers and real estate owners facing uncertainty and upheaval. Yet, the shifting environment presents intriguing opportunities when real risk is separated from perceived risk, which Green Street’s Advisory Group points out in its 2017 Mall Tenant Turnover Analysis.
The profound effects of e-commerce on where consumers shop has led to a re-thinking of retailers’ business models. Some elect to focus on on right-sizing their retail footprints, some seek to improve in-store experience and digital integration, and many are attempting to do both.
The biggest challenge facing mall landlords may not be the loss of department stores, however tough the negative perception may be. Proactive shopping center owners have responded by taking back some of those locations and creating retail environments more in line with consumer’s preferences. Despite the headline-grabbing closures of department stores, Green Street notes this trend may be less of a financial hit to a mall since “they provide only a small portion of a mall’s net operating income (NOI) because many anchor tenants own their stores or pay little-to-no rent.”
Lurking beneath the headlines are the woes (or fortunes) of in-line tenants, which have an outsized impact on mall NOI. Green Street argues their performance offers a preferred indicator of mall health.
Green Street tracked the roughly 300 national tenants who have at least 50 mall locations nationwide. It found a wide range of retailers have been downsizing or closing their entire brick-and-mortar footprint, and while some of these brands have publicized their closures, others have been doing so more quietly by choosing not to renew expiring leases. Given that in-line tenants have a higher rent-per-square-foot burden and shorter lease terms, these trends will often occur long before any anchor store closing announcements.
Green Street’s Advisory Group’s three conclusions:
– First, roughly 70% of the 950 malls studied experienced a decrease in national retailer in-line tenants
– Second, while the average amount of net closures increased materially at lower-quality malls, there was a wide dispersion of net closures impacting malls across the quality spectrum
– Third, while half of the top 25 net closing retailers have publicly announced store closures, the other half are closing relatively quietly and thus present significant risk to the sector
For comments, questions or concerns, please contact Dennis Kaiser
