Retail Space Keeps Closing and Might Break a Record in 2018
The amount of retail space going dark in 2018 is on pace to break a record, as companies with massive floorplans are either trimming back their store counts or liquidating entirely.
Department store chain Bon-Ton earlier this week was forced into liquidation, after a plan to restructure the business and keep some stores open fell through. The retailer, with a dual headquarters in Milwaukee and York, Pennsylvania, was operating more than 200 stores encompassing roughly 24 million square feet.
Since 2008, commercial real estate services firm CoStar Group has been tracking the amount of retail square footage slated to close annually. Already in April, more than 90 million square feet of space is expected to be vacated, including Bon-Ton's stores, in 2018. That's easily on track to surpass a record 105 million square feet of space shuttered last year, said Suzanne Mulvee, a senior real estate strategist at CoStar. All it will take is another handful of closures.
"I think there's probably a couple more announcements coming" in 2018, Mulvee told CNBC. "It wouldn't surprise me to see a few more significant announcements from department stores, and more chains that continue to struggle that are unprofitable."
In a recent report, Cowen & Co. said it estimates Gap, Macy's, J.C. Penney and Signet Jewelers are among those that might need to close more stores than previously forecast.
"We believe stores are not going away but without a doubt, stores/malls will be redefined as customer acquisition points and off-mall locations will continue to be a platform for off-price and value retailers to expand their footprint," Cowen analyst Oliver Chen said.
Those retailers on Moody's distressed-level watch list, which have maturities looming and risk defaulting, include Sears Holdings, Guitar Center, J.Crew and David's Bridal. Should any of these companies go bankrupt, it could mean even more vacant storefronts at malls and shopping centers.
Still, some property owners look at these closures with optimism, welcoming the opportunity to fill spaces with new tenants with more profitable businesses. In a recent case study on U.S. malls, CoStar Group found top-tier (or Class-A) mall owners were more likely than other landlords to release a space within one year of a department store anchor moving out.
"I think it gets harder and harder the more these big boxes come on the market," Mulvee said, for owners to find replacements. The future often will include more mixed-use components: residential spaces, offices, entertainment venues or medical centers. CoStar has said 2018 should be a "peak year" for the amount of retail space closing, with companies edging toward healthier fleets of stores.