Saddled with large retail vacancies, landlords look at dividing to conquer
By Danielle Douglas,
When Morton’s Steakhouse signed up in September to move into the former Borders book store in Tysons Corner, the restaurateur only took 34 percent of the 28,988-square- foot space, leaving room for two more tenants.
Expect more of the same in 2012.
Retail experts anticipate more landlords saddled with vacant big-box spaces will carve them up for multiple tenants, rather than let the buildings sit empty in wait for one large user.
Nearly 200,000 square feet of retail space came back on the market when Borders went out of business and closed its eight stores in the Washington area this year. Brokers representing the sites say interest is high, but most of the locations continue to languish on the market.
And their job is about to become more difficult. Filene’s Basement, which filed for bankruptcy in November, is set to add another 150,000 square feet to the market when it closes its four local stores next year. Another retailer could seek court approval to snap up some of Filene’s leases, much like Books-A-Million did with 14 of Borders’ sites. But the respective landlords already are considering their options.
“People are getting more creative,” said Dimitri Georgelakos, a principal with KLNB Retail, the leasing agent for several of the local Borders locations, including the Tysons Corner site. “In some cases, when these large spaces are vacated, the rents they were paying couldn’t be replaced by one tenant.”
He pointed out, however, that there are still big-box merchants looking to do deals in the Washington area. Just a few weeks ago, discount retailer Big Lots signed on for all 25,125 square feet of the former Borders store in Bowie. The store is slated to open in the first quarter of next year.
Wal-Mart, meanwhile, has moved aggressively to open new stores in Tysons Corner, the District, Oxon Hill and Rockville. The behemoth retailer has even taken over deals that fell through, such as JBG Rosenfeld’s plans to bring Home Depot to Pike Center shopping plaza. Wal-Mart’s voracious appetite for expansion may prove a blessing for landlords with loads of empty space.
Still, there is a burgeoning trend among big-box retailers to reduce the size of their store formats. Best Buy, Office Depot and Staples announced plans over the summer to scale back the size of their brick-and-mortar stores, as online sales continue to grow.
“The rise of e-commerce is influencing real estate decisions, but there is also an economic component at work here,” said JBG Rosenfeld Retail principal Krista C. Di Iaconi, while recently attending the International Council of Shopping Centers conference in New York City. “Retailers can cost effectively infiltrate more markets with smaller formats.”