Store Closings Could Double in 2009 (11/5)
Nov 5, 2008 2:06 PM
Circuit City’s announcement Monday that it was closing 155 stores, or 21 percent of its 721 U.S. locations, and planning to start lease renegotiations for others, will be echoed by numerous retailers throughout 2009, with the total number of stores shuttered in the United States expected to double the figure predicted for this year.
By the end of 2008, store closing announcements will total 6,100, according to an October forecast from ICSC. But that figure might reach 14,000 next year, according to industry insiders. Store closings are already projected to be up 25 percent in 2008 compared to 2007, according to TNS Retail Forward, a Columbus, Ohio-based retail consulting firm.
“My personal feeling is that we have not seen the worst of it,” says Matthew Bordwin, managing director and national co-head of the real estate services team in the Melville, N.Y. office of KPMG Corporate Finance LLC, a middle-market investment bank.
Landlords should brace themselves for tough times ahead, after already watching one tenant after another close stores, file for bankruptcy or announce liquidation. Now, even healthy retailers are getting rid of the bottom 10 percent to 15 percent of their real estate portfolios, says Andy Graiser, co-president of DJM Realty, LLC, a Melville, N.Y.-based real estate consulting and advisory firm. To keep vacancy rates in check, landlords will have to do everything in their power to help struggling chains survive when they themselves are being faced with a refinancing crisis.
As a result of massive store closings, vacancy rates will spike next year, reaching 17.3 percent by the middle of 2009, according to Property & Portfolio Research, Inc., (PPR) a Boston-based property research and portfolio strategy firm. The firm bases its vacancy projections by comparing the changes in retail space and retail sales against a pre-determined benchmark of required sales per square foot in 54 U.S. markets. The figure includes information on neighborhood shopping centers, community centers, power centers, regional malls and lifestyle centers larger than 30,000 square feet.
In 2009, PPR projects rents in the retail sector will decline 5.6 percent. The most viable option for landlords will be to try to hold on to existing tenants by reworking their lease terms, says Graiser.
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