CBRE recently completed a comprehensive study on the state of big box vacancy in Orange County. It showed that while the county continues its struggle to replace large tenants lost during the recession, there is progress being made in this important sector of the retail market, particularly in Class A locations.
There are currently 59 big box vacancies (20,000 square feet or larger) in 55 centers with a total of 2.3 million square feet within the county. In the past two years, approximately 1.6 million square feet of big box retail has been absorbed. The question now is, what’s left and when will it be absorbed?
Since the downturn, retailers have had their pick of great real estate. Class A space that was near impossible to find in Orange County during the boom years became available for the first time. The most active retailers, including Wal-Mart, Kohls, grocers and gyms, moved quickly to take advantage of the opportunities. In many cases, these retailers even modified their prototypes in order to do so.
With most of the Class A space quickly absorbed, our study found that 48 of the 59 boxes currently remaining, or 84 percent, are located in B or C centers. We predict these B and C vacancies will continue to be a problem for landlords. In order to lease this space and reduce blight often caused by vacant big box space, these landlords will need to start looking at alternative uses.
There are many critics when it comes to the future of big box retailing. Retailers like Borders have gone out of business while others face growing uncertainty, fueled in part by Internet sales. Some claim the Internet has killed mass merchandisers, and that the ease and simplicity of Internet shopping will continue to put pressure on traditional retailers. Others believe bricks-and-mortar retailing is an ingrained part of modern society and an integral part of its future.
Regardless, both tenants and landlords will have to change and adapt to the new reality. Retailers must figure out a way to look beyond their typical prototype. They must alter their format to utilize the multi-channels of retail sales by integrating the Internet world with the physical store. They must find a way to relocate and reposition stores to take advantage of their best demographic. Landlords should seek these types of tenants and, if none exist, look beyond retail and seek alternative uses.
In a recent article in the Harvard Business Review, Ron Johnson, CEO of JC Penny and the man credited with inventing the Apple Store, said it best. “So it’s not department stores’ size or location or physical capabilities that are their problem. It’s their lack of imagination—about the products they carry, their store environments, the way they engage customers, how they embrace the digital future.”
— Chris Gentzkow, vice president, retail specialist, CB Richard Ellis’ Newport Beach office