About 15 percent of the storefronts in Richmond’s six largest malls are vacant. And although that’s lousy news for landlords, tenants are using the recession to ask for rent reductions, even on existing leases.
The Wall Street Journal recently reported that occupied space at U.S. shopping centers and malls declined 8.7 million square feet in the first quarter of 2009. That is more space than was vacated in all of 2008 or any other recent year.
Richmond’s share of that supply is on display as more and more steel grates and “going out of business signs” crop up.
In November, just before the holiday shopping season, BizSense visited six area malls and counted empty storefronts. At that time, 9.6 percent of storefronts were vacant. Short Pump Town Center had the lowest ratio of unused to operating storefronts at 3.6 percent. The Shops at Willow Lawn had the highest at 23 percent.
Short Pump still has the lowest ratio, but the vacancy rate climbed to 6 percent as the number of empty stores doubled from four to eight. And another empty store appears to be on the way: A children’s clothing store, Strasburg Children, was advertising a going out of business sale.
Willow Lawn had 12 empty stores, the same as in the fall. There is one new addition: a chain restaurant, Noodles and Company, which is nearing completion on the outdoor portion of the shopping center.
Meanwhile, at Stony Point Fashion Park, 13.7 percent of the storefronts are vacant. That’s up from 7.8 percent.
At Chesterfield Towne Center, it’s 15.6 percent, up from 10.4 percent.
At Regency Square, that figure is 21.2 percent, up from 10.3 percent.
And at Virginia Center Commons, it’s 21.4, up from 9.5 percent.
Virginia Center Commons experienced the most attrition of the six malls. In the fall, BizSense counted nine unused storefronts. This week, 21 of 98 retail spaces were empty.
Mall operators handle their own leasing and do not regularly share the square footage vacancy rates.
Regency also experienced an increase in vacancy, but some relief might be on the way. Work is underway at Regency for retailer XXI Forever to take over more than 45,000 square feet on two floors. That clothing store already has a presence at the mall with sister stores Forever 21 and For Love 21. But Regency stands to lose some additional space. The mall has an S&K Menswear store that is going out of business.
Although mounting vacancies might lead some to wonder which of Richmond’s malls will be the next to go the way of Cloverleaf or Azalea, Susan Jones of Grubb & Ellis | Harrison & Bates said she doesn’t think any will go that route anytime soon.
“Landlords are getting creative about how they fill those spaces in ways that five or 10 years ago they never would have considered,” she said.
As an example, Jones said Chesterfield Towne Center was recently in negotiations with Costco to take over the empty Dillard’s department store. Although that deal fell apart, she said it indicated a new wave of thinking among regional malls. Another example is Eastern Health Center, a traditional Chinese medicine practice that has a presence at three area malls.
Jones said she expects the vacancy rate to continue increasing at least through summer.
“When you are a regional or local player, you can’t rely on your other 500 stores around the country to keep you going,” she said.
The rising vacancy has created a renter’s market. Jones said almost every tenant has been bombarding landlords with rent negotiation requests to reduce overhead costs enough to survive. Jones said that for the most part landlords have been receptive to those requests because it is better to have a tenant in a store with reduced rent than no tenant at all.
Although Jones said the discount rate varied depending on a host of factors, one landlord who spoke on condition of anonymity said the typical discount is up to 15 percent with a limit of six months. Another broker said discounts average between 10 and 20 percent.
In addition to the six major malls, BizSense added two more shopping areas to the most recent tally. Fairfield Commons, formerly Eastgate Mall, on Nine Mile Road had seven empty or unused storefronts for a vacancy rate of 15.9 percent. That number could be slightly higher as a couple of stores that appeared to be occupied by active tenants were closed. The aging mall has definitely adopted the creative approach to generating revenue: One shop was filled with people playing bingo. Eastgate was built in 1968 and was Richmond’s second enclosed shopping mall.
Just a few miles down the road from Fairfield Commons, the new outdoor strip center White Oak Village (owned by Chicago-based Forest City, which also owns Short Pump) had 16 empty stores for a vacancy rate of 27.5 percent. That figure includes the standalone restaurants, big-box stores (two of which are unoccupied) and the strip center “village.” The shopping center opened in October and the stores are still awaiting their debut tenants. With excess retail space opening up around the city, that wait could be longer than expected.
Al Harris covers commercial real estate for BizSense. Please send news tips to [email protected]