Big Box Retail Users Eye Rebound

Massive store closures set stage for second-generation space

SEATTLE, Aug. 16 /PRNewswire-USNewswire/ -- While the past few years have witnessed a massive increase in the amount of vacant retail space on the national "big box" market, many other retailers with expansion plans see opportunity in these larger spaces made available by struggling or failed retail chains.

According to The Big Box Dilemma, a new White Paper from Colliers International, nearly one-third of the nation's top 500 retailers have increased their growth plans for 2011 and beyond. Strong store sales during the first half of 2010 have emboldened these companies to lock in competitive lease rates in new locations.

The nine-page White Paper, which deftly analyzes the big box retail market, identified several other notable trends: Despite numerous big box store closings and chain liquidations, stronger retailers have been re-leasing several of those vacated locations as second-generation space. For example, the report notes that electronics chain HHGregg has opened more than 30 stores within the past 18 months—and plans to open 45 more in 2011. The majority of these new locations formerly housed failed electronics giant Circuit City.

In addition, top-tier big box locations—those within busy shopping centers or freestanding boxes situated on prime intersections—are moving quickly, thanks to once-in-a-generation pricing opportunities and to rapidly expanding discount and off-price retail chains. These top tier big box sites are currently accounting for the lion's share of retail occupancy growth in the United States. Colliers International expects most of these sites to be backfilled within the next 12 to 24 months.

Among the White Paper's other key findings:

• Total big box vacancy registered approximately 300 million square feet nationwide at the end of May 2010—accounting for nearly 34 percent of all retail vacancy.
• Roughly 120 million square feet of that space alone was vacated since January 2008—a total equivalent to the entire shopping center inventories of Baltimore, Cincinnati and Kansas City combined.
• Investment sales prices for big box assets in most markets are down by 40 percent or more from the peak real estate values recorded in 2006 and 2007. Rental rates have declined similarly. For tenants able to fund their own improvements, rental rates have been discounted by as much as 50 percent or more in select cases.
• The outlook for second and third-tier big box locations remains cloudy. It will likely take many years to backfill many of these sites. In some cases, demolition or the creative adaptation of these properties to non-retail use remain the best options.

"Big box retailers face one of the most challenging periods in modern times, but the demise of several large chains has created opportunities for other retailers," said Garrick Brown, Colliers International's Retail Research Director. "There is still a remarkable amount of vacant big box space, but second generation use is serving as a platform to help revive the sector."  

In addition to the former Circuit City locations that are already leasing up, several retailers have targeted many of former Mervyn's sites as suitable locations for their new stores. In fact, Colliers International expects that roughly half of the 149 vacated Mervyn's locations—totaling approximately 5.5 million square feet—will be backfilled within the next year.

The big box retail market is showing other signs of improvement. Major retailers such as JCPenney, PetSmart, Staples, Walmart, Bed, Bath & Beyond, Best Buy, Dick's Sporting Goods and many others have all announced expansion plans to commence over the next several years.

"Our inaugural Big Box White Paper further demonstrates the scope of Colliers International's research capabilities and the collaboration among our leading professionals to deliver sophisticated, insightful analysis to the marketplace," said Dylan Taylor, Chief Executive Officer, Colliers International, U.S.A.. "Colliers International has a tremendous platform to offer this level of research and thought leadership, with several other new White Papers to follow."

The Big Box Dilemma is the first of a two-part White Paper series from Colliers International. The follow-up White Paper is scheduled for Fall 2010.

* For the purpose of the White Paper, Colliers International defined "big box" as retail real estate locations 20,000 square feet or larger.

About Colliers International

Colliers International is a global leader in real estate services with more than 15,000 professionals operating out of 480 offices in 61 countries.  As a subsidiary of FirstService Corporation, Colliers offers the stability of a strong financial partner and significant local ownership providing clients with accountability and enterprising real estate solutions. Colliers provides a full range of services to real estate users, owners and investors worldwide including: global corporate solutions; sales and lease brokerage; property and asset management; project management; hotel investment sales and consulting; property valuation and appraisal services; mortgage banking and insightful research. The Lipsey Company and National Real Estate Investor magazine ranked Colliers International as the world's number two commercial real estate brand.

SOURCE Colliers International