Retailers are feeling the pain during this recession as the rising number of layoffs results in fewer shoppers with money to spend in stores. As a result, many retailers are going out of business, and the owners of retail real estate are struggling to find tenants that can pay the rent.
Real estate vacancies are rising throughout southeastern Wisconsin, and as the recession lingers, it will be difficult for property owners to fill those spaces.
The Bluemound Road corridor, long considered the top retail corridor in the region, is getting hit by an increasing number of vacancies. Menards will move out of its existing store to a new store that is being built in Waukesha. The existing Menards store is next to a former Marcus movie theater, which has been vacant for more than a year. A Circuit City store will be vacated soon and former Linens ‘n Things and Lay-Z-Boy stores on the street also are vacant.
“We’re hopeful they will fill up soon, but they are subject to the depressed market conditions that exist for retail across the country,” said Dan Ertl, Brookfield city planner. “The space(s) may sit vacant for longer than we would like because of economic conditions in our region and across the country.”
Other retail corridors that are struggling with vacant spaces include Brown Deer Road, South 27th Street and Taylor Drive in Sheboygan.
Linens ‘n Things, Circuit City, Steve and Barry’s and other retail chains are closing stores across the country. Most of those mid-box sized spaces will likely remain vacant for awhile, retail industry observers say. Few retailers are in an expansion mode to fill those vacant spaces.
Too many stores
Making the problem even worse, the Milwaukee area may have an over-supply of retail real estate.
“Milwaukee, along with most of the rest of the country, is over-stored,” said Ken Leonard, a Chicago-based shopping center and retail real estate specialist who works as a consultant and expert witness to retail developers. “That is the single most important factor that is leading to the phenomenon of so many empty stores and shopping centers. It is the result of a bubble that has been growing not just since the era of cheap money and too much of it chasing too few deals – but for many years there has been this notion that if you have an idea involved in retailing, you can go to the bank and can borrow some money and open a store selling damn near anything, even if you are across the street from a store selling the same thing.”
Leonard compares the current retail environment to Darwin’s Theory of Evolution, where the strongest specimens of a species survive while weaker individuals die off.
“When you have a big over-stored bubble … all of the weak sisters and weaklings in the herd get devoured and fall by the wayside,” Leonard said. “The Linens ‘n Things and Circuit City’s fall by the wayside, while Bed Bath and Beyond and Best Buy prosper. There isn’t a well-run retailer that is going under. All of them that are going under are the weak sisters.”
Some of the regional malls in southeastern Wisconsin also are struggling with rising vacancies, but others are still thriving.
The malls in the area that are most successful in attracting shoppers and tenants have re-invented themselves in recent years with significant renovations, said Peter Glaser, first vice president of CB Richard Ellis. Bayshore Town Center in Glendale had the most dramatic transformation with a conversion into a traditional Main Street layout adding residences, office space and restaurants. Mayfair Mall and Brookfield Square have also added several restaurants.
Mall malady
However, other malls, including Southridge in Greendale, Memorial Mall in Sheboygan and Regency Mall in Racine, have lost tenants in recent years, and those malls all have a dated look and are in need of upgrades.
Southridge should be able to make a comeback, Glaser said.
“Southridge is still a good location, near the freeway, centrally located on the south side with good population base on all sides,” he said. “They need to find a permanent anchor solution on the south side in the former Younker’s space.”
Much of the Southridge anchor space that formerly housed Younkers was home to Steve & Barry’s and Linens ‘n Things, but both closed in late 2008. Before Linens ‘n Things and Steve & Barry’s moved in, the space was vacant for several years.
The Sheboygan mall has been hurt by the Deer Trace development in Kohler, anchored by Target, Home Depot and Best Buy, Glaser said.
“The smaller stores in the mall left to get closer to Target, Best Buy and Home Depot,” he said.
Linens ‘n Things and Steve & Barry’s were also former tenants in Regency Mall in Racine, both occupying 25,000-square-foot parcels. Both closed during the second half of 2008. In addition, Marcus Cinema’s Regency Cinema, which occupies a 25,000 square foot stand-alone parcel on the mall property, will close in April.
For struggling malls it will be increasingly difficult to attract quality tenants in today’s marketplace, Leonard said.
“It’s an unfortunate situation but it is not unusual for towns like Milwaukee to have good malls and poor malls,” Leonard said. “And for the poor malls there is no magic wand.”
The Shops of Grand Avenue in downtown Milwaukee faces even more daunting circumstances, Leonard said. Downtown malls in cities the size of Milwaukee generally are not successful. Linens ‘n Things was a former tenant, and its closure has left a sizeable gap in the mall’s Plankinton Arcade.
“The same things are happening in towns the size of Milwaukee (around the country),”Leonard said. “The downtown mall is suffering because of the same competition and over building that has hurt the secondary suburban malls. I remember when it (Shops of Grand Avenue) opened. Downtown Milwaukee was never the powerhouse that other downtowns of comparable size were. And if you look at cities of comparable size, all of them have sickly downtowns insofar as their retail world goes. The fact that Shops of Grand Avenue is called a mall is irrelevant. Downtowns are hurting.”
Leonard compared some of the ailing malls to elderly patients with chronic diseases.
“You can have the best doctors, but if you are 88 years old and are sick as a dog, you are going to die,” he said. “That’s what you are facing with the secondary, C level malls. Any mall that is generating less than $300 a foot in today’s world is eventually going to fail.”
Retail evolution
The retail culture in the United States has shifted since the heyday of shopping malls in the 1970s and ‘80s, Leonard said, with big box discount retailers giving C level secondary malls a source of competition that they are ill-equipped to handle.
“It’s evolutionary – before everybody went to the mall and now everybody goes to the discount stores,” he said. “There isn’t going to be a resurrection of these malls. There is nothing that is going to go in there that will change things around.”
Cynthia Jasper, a professor of consumer science and chair of the Department of Interdisciplinary Sciences at the University of Wisconsin, agreed with Leonard’s theory of Milwaukee and much of the rest of the country being over-retailed. She also said it can be very difficult for shopping malls and retail areas to turn around negative momentum from multiple store vacancies.
“It feeds on itself too,” she said. “As more (tenants leave), fewer want to move in. It just gets harder and harder to fill those spaces. And once a few major retailers move out, it gets really difficult.”
Most of the empty retail real estate space in and around troubled malls will sit empty for a significant amount of time, Leonard said, partly because of the number of national retailers that have gone out of business and the state of the economy in general.
“They will sit vacant for a number of years simply because nobody, not even the good merchants who are well-established, will want to go in there,” he said. “Who’s going to take the empty Circuit City stores? For a while, you’ll get the flea markets, the Halloween stores and (temporary) book stores. But owners will be hard-pressed to find another good merchant. They will have to remodel a store, and a remodel costs almost as much as it does to build a new store in the first place.”
In fact, smart landlords who own empty retail commercial real estate may even proactively demolish their buildings now as a way to lower their tax exposure, Leonard said, because of how difficult it will be to attract quality tenants. However, many will not take that step, he acknowledged.
“With human nature being what it is, landlords will keep hoping (to find a tenant),” Leonard said. “Your average landlord is an optimist of maximum degree. And the average landlord will not recognize the fact that nobody is out there that makes any sense to take his empty store. Good retailers aren’t expanding, and the bad ones are closing.”
New retail development in southeastern Wisconsin has slowed considerably as the economy has tanked. Wal-Mart is an exception and plans to build new stores in Waukesha and Muskego. A Wal-Mart store and a Sam’s Club store will anchor a shopping center under construction near Kenosha. Woodman’s plans to build a new grocery store in Menomonee Falls.
Other new retail developments that are under construction in the area include the Shoppes at Fox River (anchored by Target and Pick ‘n Save) on Sunset Drive in Waukesha and the Shoppes at Prairie Ridge (anchored by Target, Dick’s Sporting Goods, PetSmart and JCPenney) on Highway 50 in Pleasant Prairie. The Shoppes at Wyndham Village project in Franklin was completed recently at Highway 100 and Drexel and is anchored by Target and Sendik’s stores.
Stalled projects
However, the regional mall planned for the Pabst Farms development in Oconomowoc has been delayed as the project has struggled to attract tenants. City officials have raised concerns that the mall will not have the high-end tenants that were originally promised. Another large retail development proposed by a Florida developer along I-94 in Kenosha County, also remains stalled in the down economy
The retail real estate in the area that is having the most success attracting tenants are spaces in grocery store-anchored shopping centers that fill day to daily needs, not luxuries.
“We happen to be bullish on local leasing activity in 2009,” said Dan Rosenfeld, principal of Mid-America Real Estate. “We’re seeing great results with neighborhood grocery anchored shopping centers that serve everyday needs.”
