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Saturday, Apr 13, 2024

Filling Up the Big Boxes

Over the past year or so, big box retailers like Mervyns, Linens-n-Things, Shoe Pavilion, and Circuit City have shut their doors flooding the local retail real estate market with thousands of square feet of vacant space. And big boxes aren’t easy to sell or lease, even when located in prime areas. They range in size from about 20,000 square feet to 90,000 square feet and only appeal to a select number of businesses. “There are definitely some challenges in trying to figure out what to do with these vacant spaces,” said Ken Shishido with Lee & Associates. “It’s often not easy to find a single tenant.” But progress is being made filling the void, said local real estate pros. Discount retail chains are expressing interest in and snatching up some of the spaces, and property owners are considering splitting up big boxes to accommodate multiple tenants. Michael Schiff of NAI Capital recently brokered a deal for the sale of a former Circuit City storefront in Thousand Oaks that was vacated in January. The 23,623 square foot space, located at 600 W. Hillcrest Drive, sold for $5.3 million. Schiff is also representing the new landlord in a 15-year lease transaction for the entire space that’s expected to close in the next few weeks. He said the prospective lessee is another national big box retailer. “The difficulty is the larger the space the fewer the potential tenants who can fill that space,” said Schiff, adding the Circuit City location was marketable because it’s relatively small and located in a high traffic area. Marketing huge spaces, like former Mervyn’s stores, is a whole other beast, he said. “As a landlord, you have to be willing to divide that space.” On the leasing side, Schiff has seen an uptick in inquiries from discount retailers. They’re seizing the opportunity to expand in the down economy because rental rates are 30-40 percent less than a year ago, he said, and retailers can lock in rates for multi-year leases. “Now is the absolute time for these guys to expand,” said Schiff. “Tenants know for sure that rates are eventually going up.” Retail vacancy rates in the San Fernando Valley are expected to keep climbing and rents falling through 2009, according to a Marcus & Millichap research report in early June. In the past year, vacancy rates increased 170 basis points to 4.6 percent and asking rents declined 0.4 percent to $32.74 per square foot. Effective rents have fallen 2.4 percent to $29.40. And being a small business owner located next to a vacant big box isn’t easy. Claudia Gennaro purchased Gaucho Grill in Woodland Hills about three months ago, right around the time Circuit City located on Canoga Ave. and about 50 yards from the restaurant closed its doors. “Since Circuit City closed, business has been slower than before,” said Gennaro, adding the property manager says retailers are inquiring about the space but she has yet to hear whether or not it’s been leased. Given the restaurant’s location in the mall, it doesn’t benefit heavily from traffic to other major retailers, said Gennaro. So the restaurant is boosting business by upgrading the facility, expanding the menu and increasing the marketing budget. Northridge Fashion Center currently has a vacant 35,000 square feet retail space formerly occupied by Circuit City. The property owner and manager are “thinking outside of the box” to fill it, said Daniyel Gordon, senior general manager of the shopping center. “We’ve taken a creative approach to filling those big box locations,” said Gordon, adding the property owner is considering sub-dividing the space and/or leasing all or part of it on a temporary basis. She said the down economy has certainly affected how quickly the space is being filled. But Northridge Fashion Center is seeing more interest from traditional big box retailers and some of the discount chains. Janet LaFevre, senior marketing directing for the Glendale Galleria, said the shopping center is trying to fill a 90,000 square feet space formerly occupied by Mervyns. Restaurants, discounters, traditional retailers and entrepreneurs have all inquired. “The biggest trend we’re seeing (speaking of prospective tenants) is about creativity,” said LaFevre, adding the center is considering any and all possible uses of the space as long as it complements other tenants in the Galleria. Shishido said many property owners are trying to mix and match to make a deal work. But closing these deals can be difficult. In the case of a 90,000 square foot Mervyns location with an escalator located in the middle, sub-dividing can be capital intensive. And some property owners have clauses in their leases that force them to gain approval from other tenants before filling the space. In the case of a not-so-optimal tenant moving in, neighboring retailers may ask for some sort of compensation, said Shishido. Palmdale, population approx. 140,000, lost Circuit City, Mervyns, Linens-n-Things, Wickes and Gottschalks. But local real estate pros have also had some luck filling those spaces. Forever 21 took over the former Mervyns location at the Antelope Valley Mall; an undisclosed furniture retailer recently inked a deal for the Wickes storefront at Sierra Commons; and Smart & Final Extra! took over the Linens-n-Things space.

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