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 "We're seeing a seismic shift in retail shopping centers," said
Garrick Brown, director of research at real estate firm Cassidy
Turley. "The challenges of the weak economy are being replaced by
the challenges of e-commerce."
The shift may reflect some consumer pain, but it has brought plenty
of winners, too. Commercial real estate rents are rising, and many
retailers, especially bargain chains, are in better shape than they
have been since the Great Recession in 2008, analysts say. Shopping
center vacancy rates in 60 major U.S. markets fell to 8.6 percent at
the end of last year from 9.5 percent a year earlier, reflecting 38
million square feet of occupancy growth, according to Cassidy Turley
research.
As a result, price appreciation among retail assets led all
commercial property types in 2013, rising 23 percent, according to
Moodys/RCA CPPI.
J.C. Penney Co Inc and Sears Holding Corp are retrenching and
fighting for survival, raising a red flag for malls where, as anchor
tenants, they draw foot traffic to nearby smaller stores.
Meanwhile, Staples Inc and RadioShack Corp earlier this month hit
the U.S. commercial real estate market with plans to close a
combined 1,325 stores. Analysts said they were slow to react to
declining foot traffic and the surging amount of consumer shopping
moving to the Internet.
U.S. shopping center owners say they have had no reason for alarm.
With new retail construction at historically low levels, they are
getting help from a stable of discount retailers. Costco Wholesale
Corp, T.J. Maxx, Marshalls, Dollar General, Nordstom Rack and Ross
Stores have been quick to fill vacancies.
Many of those stores are in great shape. Shares of bargain chain
operators TJX Companies Inc and Dollar General Corp have risen 36
percent and 19 percent, respectively, over the past year as they
open stores at a rapid clip.
The top five Dollar store brands together have opened an average
2,000 new stores each of the past three years with similar growth
plans for this year, according to researchers at Cassidy Turley.
"Dollar stores have just had insane, insane levels of new growth,"
Brown said. Dollar General has more than 11,000 stores, with plans
to open several hundred more in 2014. The chain has more stores than
RadioShack and Staples combined, which have about 4,300 and 1,900,
respectively.
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"I see a lot of companies interested in the space that Staples would
be exiting," said Peter Dixon, who runs the $1.1 billion Fidelity
Select Retailing Portfolio. The fund's 1-year return of 30.37
percent beats 96 percent of peers while trouncing its benchmark by
12.5 percentage points, according to Morningstar Inc data.
Senior executives at Kimco Realty Corp agree with Dixon's
assessment. Kimco, North America's largest owner and operator of
neighborhood and community shopping centers, says it can absorb hits
from consolidation in the office supply industry by signing up
tenants such as T.J. Maxx and Marshalls, and specialty grocer
Sprouts, for example.
TJX Cos, owner of T.J. Maxx and Marshalls and the operator of 3,200
stores, said cash outflows for property additions totaled $759
million for the nine months that ended November 2. Capital spending
plans for fiscal 2014 will amount to as much as $950 million,
compared to J.C. Penney's plan for about $300 million, according to
their financial reports.
Kimco Chief Executive Dave Henry recently told analysts and
investors at a Citi property conference that new store openings are
at a five-year high.
"So even as these retailers consolidate, the demand for these bigger
box (spaces) is good and strong, and rents are beginning to jump,"
Henry said at the March 3 conference.
In 2013 nearly 10,500 new retail stores opened, compared with about
2,600 closures, according to Factset research.
(Reporting by Tim McLaughlin; editing by
Richard Valdmanis and Richard Chang)
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