The greater Boston retail market experienced a substantial rise in the vacancy rate to 9.5 percent through June 2018, reflecting an 11.3 percent increase in unoccupied space, compared to a level of 8.6 percent in 2017.
At the same time, total inventory ended the year at 196 million square feet, a gain of 1 percent, nearly the same square footage as the increase in vacant space. This resulted in a nominal negative absorption rate of only 21,900 square feet.
A considerable number of large format store closings and chain liquidations were responsible for the disappointing outcome, which could have been even worse without a significant number of retail conversions to non-retail space cushioning the impact.
Robert Sheehan, Vice President, KeyPoint Partners
The retailer gaining the most retail space in the region was Wegmans, adding a two-level store at Natick Mall and a second unit at the redeveloped Meadow Glen in Medford. In second place was 7-Eleven, completing its brand conversion from Tedeschi Food Shops, which it acquired in 2015. Market Basket rounded out the top three, adding new stores in Lynn and Fall River. By number of new units, 7-Eleven added 68, the most of any retailer. Metro PCS was a distant second, adding 16 stores while another wireless provider, T-Mobile, increased its count by 14 locations.
Toys ‘R’ Us, the once formidable toy store operator, tops all retailers for largest space reduction. Sears closings in Burlington, Dedham, and Taunton placed it firmly in second place. Tedeschi Food Shops follows in third.
Tedeschi Food Shops also led all retailers with the loss of all its 107 remaining stores, most of which are now 7-Eleven. Payless ShoeSource trailed with 18 store closings followed closely by Subway, dropping 17 units.
The region has experienced further fallout in recent months. Rite Aid, Mattress Firm, Papa Gino’s, and D’Angelo sandwich shops combined to close 81 stores and 341,100 square feet of retail space since June. Additionally, Sears closed a 224,000 square foot store in Peabody at Northshore Mall.
While there are obvious reasons for the spike in vacancy this year, it doesn’t explain the fact that brick-and-mortar retailers and landlords remain under pressure from the continued onslaught of e-commerce.
At the same time, developers made significant investments in new retail space during the year, nearly offsetting the increased vacancy. Several significant projects in the region including Southcoast Marketplace in Fall River, Lakeway Commons in Shrewsbury, Meadow Walk in Sudbury, Wegmans at Natick Mall and Life Time Athletic in Burlington all opened this year. As noted, the Boston Seaport development also contributed considerably to the regional inventory with King’s, LL Bean, ShowPlace ICON Theatre and Tuscan Kitchen, among others.
With its Amazon-proof characteristics, entertainment is becoming a go-to category for new development or vacancy replacement. In addition to Kings and ShowPlace ICON Theatre, O’Neil Cinemas and Picture Show opened new movie theaters in the region, while Lucky Strike opened a new bowling facility. Altitude Trampoline Park opened two locations, one of which is a part of the new Apex Entertainment complex in Marlborough, offering a multitude of entertainment tenants.
As difficult as it is to find replacements for vacant mall space, enclosed regional shopping centers are seeing demand for new escape rooms, virtual reality concepts and arcades, among other entertainment venues. Significant growth is also occurring among health, fitness and medical facilities.
This region continues to experience significant new development and store openings, which reinforces the fact that a “retail apocalypse” has been greatly exaggerated. However, Eastern Massachusetts will continue to see a brick-and-mortar fallout from the strengthening shift toward online shopping. Many sophisticated retailers are forgoing physical growth in order to enhance their online shopping experience and compete more effectively with Amazon.
Shopping center developers also need to adjust to the digital world and it appears that the type of new projects in 2018 are a reflection that caution signs have not gone unheeded.