Well-publicized retail bankruptcies and store closures marked the first half of 2023. Over the past several months, Tuesday Morning, Party City and Bed, Bath & Beyond locations closed up shop.

The bad news is that these retailers closed and left behind empty space.

Here’s the better news. Experts tell Connect CRE that the closures haven’t necessarily led to scads of empty space on the market. There are plenty of takers for what’s available.

Bed, Bath, Beyond . . . and Backfill

Though the closures generated negative press, The Providence Group’s Jay Hagerman, for one, pointed out that “some of the bankruptcies we’ve see this year involve companies that have been on the fritz for the last little while.” This was certainly the case with Bed, Bath & Beyond.

But the space that is now available is well-located, which is finding favor with the likes of TJ Maxx, Marshall’s HomeGoods and fitness centers like Planet Fitness and Crunch Fitness. “It’s not necessarily new players in the market,” Hagerman said. “But it’s opened up opportunities that might have been in trade areas that were tough to get into.”

And those spaces are also attractive to grocery stores who want to “add additional stores in existing markets” in addition to entering new geographic locations, noted Chad Byerly with Northmarq.

The Woodmont Company’s Grant Gary said that restaurants are also backfilling these empty spaces. “In many cases, forward-thinking landlords have redeveloped the big boxes into a multi-unit building, attracting smaller, much-needed retailers and restaurants to its center,” he added.”

Finally, other owners and investors are repurposing the space for other non-retail uses, including co-working, office or entertainment. “I’ve recently seen a new burst of pickleball courts inside malls and vacant department stores,” observed Pamela Goodwin with Goodwin Commercial.

The 2H 2023 Outlook

What does this mean for the rest of the year? After all, consumer spending is still strong, while there isn’t a whole lot of excess space to suggest a slow rent growth. Scott Grossfeld with Cox, Castle & Nicholson said that the retail sector should continue fairly strong in A locations. However, “with regard to investment sales of retail centers, that will depend on interest rates,” he added. “Greater certainty is paramount to kick-starting the dormant sector.”

Still, Byerly pointed out that many sellers are increasingly motivated to move product in the space. “They’ll continue to move their pricing based on the market and to find the right buyer to close the transaction,” he said.

But this depends on the retail type. Gary explained that single-tenant net lease retail below a 6% cap rate continues to struggle to find buyers. Capital market tightening and a continued wide bid-ask spread also mean a slowdown in transactions. “On the flip side, daily needs retail centers are seeing the greatest investor demand and transaction velocity,” Gary added.

Meanwhile, Hagerman explained that from a leasing standpoint, retail leasing is far from struggling. “My advice to retail clients is, when a bright light shines down on one particular center they want to be in, the space might simply not be available,” he said. Concessions might be called for, whether more flexibility in rent or a willingness to lower the TI allowance.

And while e-commerce and online shopping will expand, “consumers still want to be able to go inside a brick-and-mortar store to feel and touch the merchandise,” Goodwin said. “Tenants and investors need to stay ahead of the game and offer more options to consumers.”