LAS VEGAS — Developers and retailers at the International Council of Shopping Centers ReCon convention here said bankruptcies, widespread store closures and falling consumer demand are in the rearview mirror, but don’t anticipate a strong, sustained recovery until at least next year.
This story first appeared in the June 1, 2010 issue of WWD. Subscribe Today.
This year “will have ups and downs,” said Rick Caruso, president and chief executive officer of Caruso Affiliated, owner of Southern California lifestyle centers The Grove and The Americana at Brand. “The broader market is still nervous and doesn’t know where things are headed, and that will continue into 2010 and early 2011.”
Executives said during the convention held from May 23 to 25 that retail activity is slowly coming to life as select concepts — value-oriented stores, in particular, remain a dominant force — take advantage of favorable market conditions.
Sandeep Mathrani, executive vice president of retail real estate at Paramus, N.J.-based Vornado Realty Trust, which has 164 retail properties, said he is “very guardedly optimistic. There could be a false sense of security. Depending on the disruption in Europe, you could have a liquidity crisis again,” he said, adding: “I don’t think we will see the retraction that we saw in 2009.”
Many retailers aren’t waiting out the uncertainty on the sidelines. With shoppers perking up, retailers that withstood the worst of the downturn have cash on hand and are considering expanding before rents rise.
“Where previously they might have been looking for 100 [units], they are looking for 10 to 20, but they are looking for stores,” said Peter Lowy, group managing director of the Westfield Group, the world’s largest retail property owner by market capitalization.
Developers Diversified Realty has been a beneficiary of more retailer demand. The Cleveland-based owner and manager of 640 retail properties executed 422 deals in the first quarter involving 2.6 million square feet.
“We are seeing competition for space across all categories,” said Scott Schroeder, DDR’s vice president of marketing and corporate communications.
Most shopping center players agreed that retailer momentum would pick up starting next year.
“There are a lot of people talking about new stores, but there are a lot of people talking about them in 2011,” said Michael Glimcher, chairman and ceo of Glimcher Realty Trust, a Columbus, Ohio-based mall developer with more than 100 shopping centers.
As the economy appears to gain traction, the appetite for rental concessions has softened. In a sign of the times, DDR has closed its department for rent-relief requests, and Glimcher Realty Trust is disbanding a similar unit.
“Last year, the tenants had all the leverage in the world,” said Suzanne Mulvee, a retail real estate strategist at marketing and analytic services firm CoStar Group. “The extreme imbalance in the power relationship [between landlords and tenants] is balancing out.”
At the end of last year, CoStar found that the average retail rent rate was $16.59 a square foot, down 5.7 percent from a peak of $17.55 in the third quarter of 2008, and forecast that rents won’t climb across the market until 2012. At ReCon, however, shopping industry executives said many rents have flattened out and even begun to escalate a bit at popular properties. In addition, occupancy levels are inching up, with DDR predicting its occupancy rate soon will reach 92 percent compared with 90.1 percent in the fourth quarter of last year.
“The smart retailers are in expansion mode,” said John Bemis, executive vice president and director of leasing and development services at Jones Lang LaSalle, the Chicago-based manager of the largest retail portfolio in the U.S. “The price is right. They can get good long-term commitments for their real estate.”
The main guessing game at ReCon focused on which retailers are going to make the most out of the current economic circumstances. Value and fast-fashion retailers and department stores, including Forever 21, Dollar Tree, TJX, Ross and Kohl’s, and the off-price formats of Saks, Bloomingdale’s, Nordstrom, Lord & Taylor and Neiman Marcus, were mentioned as the primary growth drivers.
Several shopping center companies weren’t shy about their desire for even more from fast-fashion retailers, especially concepts such as Uniqlo and Topshop that have a limited U.S. presence. “We are hoping for an invasion from Asia and Europe,” said Chris Weilminster, senior vice president of leasing at Federal Realty, a Rockville, Md.-based investment trust with 84 properties.
Others stressed the limits of the outlet concepts. William Taubman, chief operating officer of Bloomfield Hills, Mich.-based mall owner Taubman Centers Inc., wasn’t keen on planting outlets in conventional shopping centers. “In life, you have to stand for something,” he said. “When you start mixing things, it clouds the clarity.”