Big boxes leave big holes
The changing strategies of big-box retailers are forcing some local real estate developers to look for replacement tenants as the economic recovery limps along.
Many developers and shopping mall owners recalibrated projects after the economic crisis hit in 2008, in some cases downgrading from expensive, mixed-use projects to big-box-anchored shopping.
But the recession and the ensuing sluggish economy have claimed some of the retail tenants that had become the main targets for landlords. Circuit City, Linens ‘N Things and Borders all went out of business while other large retailers are rethinking their plans, forcing a new round of adjustments among developers.
“You hate to see retailers go out of business like that, but … that has opened up a lot of opportunities,” said M. John Meyer, a principal at the brokerage firm KLNB.
Overall, the retail market remains strong in the Washington area, where the 5.5. percent overall vacancy rate for shopping centers in September compared with the 9.3 percent national rate. Other fundamental strengths — higher than average incomes and lower than average unemployment — still hold as well.
But those market conditions have done little so far to fill most of the eight spaces that housed Borders stores before that chain liquidated in February. (The site of the former Tysons Corner store is an exception; it will become a Morton’s Steakhouse.)
The region’s track record also did not stop Target from canceling plans to open its second store in the District, off of New York Avenue NE. Expansion plans for Lowe’s are up in the air as well after it announced the closing of some stores nationally and recently pulled out of a mixed-use project in Baltimore.
The development Target fled, called the Shops at Dakota Crossing, still is expected to contain a new Costco and other large-format retailers, including Marshalls and Shoppers Food Warehouse. Michele V. Hagans, chairman and chief executive of developer Fort Lincoln New Town Corp., said Target, which declined to comment, did not provide a reason for its decision. “We are close to signing another big-box retailer for that space,” Hagans said.
Further down New York Avenue Northeast, developer Rick Walker has been pitching plans for a retail center, The Point at Arboretum, that would feature a “home improvement” store and a Wal-Mart.
Walker thought he had a deal for a Lowe’s in a similar project in Baltimore before the home improvement chain backed out of that deal. He has been mum on whether a Lowe’s was also in the cards for Washington; he will only say he expects to make some changes to his District plans in coming weeks.
While other chains have pulled back, Wal-Mart has moved aggressively to open new stores in Washington area markets including the District, Tysons Corner, Rockville and Oxon Hill. In some cases, the discount giant is locking up spots that had been planned for other uses, or other retailers. JBG Rosenfeld initially planned to bring a Home Depot to a site on Rockville Pike where Wal-Mart now plans to open. On East Capitol Street in the District, Wal-Mart is in negotiations to open a store where Shoppers Food Warehouse had been in negotiations.
For big-box retailers that were already skittish, Wal-Mart has created further reason to be nervous, said Keith Sellars, of the Washington D.C. Economic Partnership.
“Wal-Mart has shaken other retailers’ strategies,” he said.