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Page 14 — Retail Properties Quarterly — August 2017
State of Retail
M ultistore closures com-
monly force landlords to
watch the lights go out
on their anchor tenant(s),
leaving behind the over-
arching question: What does a
landlord do with large retail vacant
space?
For larger retail centers that hold
strong co-tenancy and are posi-
tioned in an area with attractive traf-
fic counts, the task of replacing an
anchor tenant or big-box space has
proven to be easier than property
types with different circumstances.
Replacing tenants in a successful
and busy center sometimes can be
accomplished with simply finding
other national tenants looking to
close a gap in their geographic mar-
ket coverage. Many of these new ten-
ants come from the discount-focused
arena as the market appears to shift
in that direction for brick-and-mortar
locations. However, the list of active
and potential tenants across the
board is irrefutably not what it once
was and is forcing many owners to
look for nontraditional or more com-
plicated and expensive solutions.
In the situation of large grocery or
department story vacancies, many
times the only viable solution is
to look at demising the space into
two, three or four units. The result-
ing spaces tend to appeal more to
the desired footprint of end users
and generate a higher per-square-
foot rate than if left as-is. Some of
these replacements may even be the
national retailers that historically
would look for larger footprints, but
now are looking for smaller and more
specialized stores to stay viable in
the market. Target, Toys“R”Us, Kohl’s,
Best Buy andWhole
Foods are just some
of national tenants
considering smaller
store footprints in
new locations.
One element that
should not be over-
looked by landlords
and owners is that
demising larger
units often comes
with a surprising
price tag. Whether
in the cost of con-
struction or the
cost of downtime, landlords do not
always find it worth it or feasible to
demise a space even if the result is a
more diversified property with higher
per-sf rates.
The fact of the matter is construc-
tion costs are painfully high, the pool
of qualified contractors is painfully
low, and there are extreme backlogs
and delays throughout the planning
and permitting process in many
municipalities. The costs to split
just the electrical/heating/cooling
systems and address restrooms in
vacant units has been an obstacle
proving to be a stopping point for
more than a few of my clients.
On top of this, due to the deep bay-
depth design of older stores, it often
is not feasible to demise big boxes
into smaller units without the result
being unattractive for traditional
retailers looking to maximize their
storefront widths.
Without a similar, ready-to-take-
over tenant, many property owners
decide a full redevelopment is the
only solution. Experienced and well-
funded property owners may decide
to retain and complete a redevelop-
ment themselves. However, many
owners realize this is not realistic for
them. As a result, with the holding
costs and complexity of these proj-
ects, their only option is to sell their
retail asset to an experienced devel-
oper.
A few local examples of long-time
retail locations redeveloped or slated
for redevelopment include:
• The recently closed Kmart proper-
ty on Alameda and Broadway, which
is in planning for redevelopment into
a mixed-use property with as many
as 350 multifamily units.
• The 2015 teardown and rede-
velopment of the Office Depot on
Hampden and Yosemite into a
100,000-sf-plus indoor Edgemark Self
Storage location.
• The former Safeway on Hamp-
den and Happy Canyon slated for
a repurposing into a multitenant,
high-end retail and restaurant desti-
nation.
Often redevelopment in the short-
term is not a viable solution due
to costs, poor location, surround-
ing market saturation, and lengthy
rezoning and planning/approval pro-
cesses. When this is the case, land-
lords must bite the bullet and look
for nontraditional users for their tra-
ditional retail space. These often are
less desirable uses with lower credit
and lower rates. Most owners have
the obligation to keep income com-
ing in, whether long term or short
term, to keep their redevelopment
project afloat or simply prevent a
loss of the property to their lender.
These users are frequently event
centers, churches and trade/charter
schools, among others. Landing one
of these tenants to a poorly located
retail property is not always the kiss
of death. Some remain long-time
tenants at a very low cost of replace-
ment from previous tenants.
As the retail market evolves, we
will continue to see many of the
retailers we have known our entire
lives go dark, and there will be new
retailers in the market we could not
imagine in the old landscape. How-
ever, I believe retail is not dying,
only evolving. As an industry, we
have proven we can evolve with
these ever-changing markets and
have the determination and creativ-
ity to keep retail viable, even if on a
new path.▲
Gannon Roth
Senior broker
associate, Unique
Properties Inc.,
Denver
Whether in the cost
of construction or the
cost of downtime,
landlords do not
always find it worth it
or feasible to demise a
space even if the result
is a more diversified
property.