Even as anchor retailers such as JCPenney, Sears, Sports Authority and Macy’s downsize their store fleets, there are plenty of vibrant, newer concepts to replace them, experts say.
Small-business optimism hit a low point 2009, but the entrepreneurial climate has been climbing steadily ever since. In January of 2016, the National Federation of Independent Business’ Small Business Optimism Index posted its highest reading since 2004. “Increased confidence on the part of small businesses could support the creation of new retailers, a positive trend that should generate greater in-line space demand in strip centers, says Marcus & Millichap’s first vice president of research services John Chang. “A rise in space demand also comes at an opportune time, supporting the growing trend of subdividing former anchor spaces,” Chang wrote in his 2017 investment forecast report. “Redevelopments into smaller-format stores and restaurants are increasing traffic at these centers and attracting a wide range of merchants. As tenant mixes are revamped and customer traffic rises, owners are generating more revenue through higher rents.”
As new local restaurant and retailers move into these subdivided former anchor stores, vacancy levels decline. According to Marcus & Millichap, the national vacancy rate fell 50 basis points to 5.5 percent in 2016, and the trend is expected to continue this year, reducing vacancy to 5.1 percent.
Small-shop leasing was a bright spot at Kimco Realty’s portfolio of 524 open-air centers in 2016. Small-shop occupancy hit 89.9 percent and shows no signs of slowing down in 2017, Kimco Realty CEO Connor Flynn said in his fourth quarter conference call with investors. “Small-business sentiment is at a multiyear high. The leading small-shop categories are primarily service and food,” he said. RPAI, too, has noted an uptick in small-shop demand at its 156 centers, according to Shane Garrison, executive vice president, COO and chief investment officer. “Over 95 percent of the new retail leases signed during the fourth quarter were for small-shop space, resulting in a small-shop lease rate of 91.2 percent for the same-store pool and 89.9 percent for the retail portfolio, up sequentially 80 and 100 basis points, respectively,” he said.
Former Neiman Marcus and Saks Inc. executive Harry Dodson is one of the small-shop retail entrepreneurs expanding their businesses. Dodson launched his Green4Life concept in a 1,300-square-foot space at Edens’ Asheville (N.C.) Market in August 2015. What he calls his “eco-emporium” stocks a variety of environmentally sustainable merchandise at value-oriented prices. Green4Life is preparing to roll out four or five stores over the next two years. Dodson is currently seeking locations in the Raleigh-Durham market, and he has been in contact with landlords for opportunities outside North Carolina. The future stores are likely to be slightly bigger, at about 1,800 to 2,000 square feet.
“We have done so well in a strip center next to Whole Foods that we are obviously looking for that same type of development, but it is not out of the question that we would go into an enclosed mall as well,” said Dodson.
From ICSC Newsroom