As retailers have finally come to the realization that they’re drowning in square footage, news of store closures floods the headlines. With changes like these, there will be inevitable ripple effects. Though in the cased of malls, what may result will be more like a tsunami.
This bleak forecast comes courtesy of Credit Suisse, which in a research note yesterday, pronounced that up to a quarter of existing shopping centers won’t survive beyond 2022. That’s 275 locations, according to Fortune magazine.
That number seems high but it shouldn’t come as a surprise since Credit Suisse estimates that 8.640 stores will close in 2017. That’s more than four times more than last year and 2,477 more than in 2008 in the midst of the great recession. Just add them up: 100 for Macy’s, up to 800 for Payless, 125 at Michael Kors, 108 for Kmart, 160 for Gander Mountain and the list goes on…
At the same time online shopping is doing its part to relegate these locations to relics. The firm predicted apparel sales will balloon from 17 percent of all e-commerce sales to 35 percent by 2030.
Though the commercial real estate industry has been putting a sunny face on its collective preparedness—anchors are becoming gyms! Storefronts are transforming into restaurants—its hard to imagine how all of this space will be repurposed in just 5 years. That said, some have been using the rash of closures and bankruptcies to oust low paying tenants in favor of businesses from which they can demand more.
(Read more about how mall owners are planning to weather the storm: Don’t Write That Retail Obit Yet)
And some property owners have more of a challenge than others. The credit agency highlights Simon Property Group and General Growth Properties as two of the once that have long since exited vulnerable B and C properties. Today each enjoy at least 96 percent occupancy.
With 11 and 12 percent respective occupancy rates in weak malls, Macy’s and JC Penney have the most exposure, Credit Suisse noted.