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Bring On the Empty Bed Bath & Beyonds, Some Say; 5 Economic Predictions for 2023, and Lots More

February 24, 2023

Landlords see plenty of potential replacement tenants for Bed Bath & Beyond stores that are closing, thanks to an easy-to-adapt, 30,000-square-foot store prototype. The company plans to close 416 of its 953 North American stores as it struggles to rebalance its finances. In past impactive bankruptcies like those of Sports Authority, Toys R Us and Stein Mart, the stores ranged from 40,000 to 45,000 square feet and thus were harder to split up, according to Alan Roth, executive vice president of national property operations and president of the East region for Regency Centers.

Among the stores Bed Bath & Beyond has marked for closure, five are in Regency’s portfolio. Bed Bath & Beyond’s rental rates for those stores are 15% to 20% below market value, according to Roth. At some other properties where Regency expects additional Bed Bath & Beyond stores to close, the landlord has put out an RFP for replacement tenants.

Wanted: Big-Boxes Ripe for Redevelopment
How to Reuse an Empty Big Box

Meanwhile, Kimco Realty has lined up tenants for six of the 25 Bed Bath & Beyonds in its portfolio that are slated to close. The potential combined increase in the rental rate is 12%, according to Kimco CEO Conor Flynn. “We continue to see strong demand from a diverse set of retailers for the vast majority of these well-located boxes, which are primarily in desirable demographic areas where there is virtually no new supply,” he said on an earnings call.

None of InvenTrust’s Bed Bath & Beyond locations currently are targeted for closure, but the landlord is ready to absorb any vacancies that may come, according to executive vice president, general counsel and COO Christy David. “In this environment, vacant retail space is becoming scarce and is viewed at a premium,” she said on an earnings call. “We view recapturing space now in an orderly manner as a positive opportunity embedded in our portfolio and one we are ready to capitalize on.”

Among the tenants that like the looks of Bed Bath & Beyond spaces and properties is TJX Cos. More on that below, under 5 More Retailers Making Headlines.

5 Economic Predictions for 2023

It wouldn’t take much to knock the economy into a recession, according to Moody’s Analytics senior director and global head of forecasting Marisa DiNatale. She also maintained, however, that the Federal Reserve’s clear communication of its data will keep market expectations in line and help the U.S. economy navigate to a soft landing, even if employment and supply chain troubles flare up later in the year. DiNatale spoke to ICSC president and CEO Tom McGee on a LinkedIn Live this week called From Where I Sit with Tom McGee — 2023: A Look at the Year Ahead. “People are spending more on necessities than discretionary items,” she said, adding that upper-income households are less impacted.

DiNatale predicts:

  • Inflation will decline to 3%.
  • GDP growth will slow to between 1.3% and 1.4%.
  • Unemployment will grow to between 3.7 and 3.8%.
  • The Federal Reserve will hike the interest rate two more times, ending at 5%.
  • The yield on 10-year treasury bonds will grow from 4% today to 4.15%.

Watch a recording of McGee and DiNatale’s discussion.

Cash-Rich REITs Are About to Make a Lot of Friends

It’s a good time for cash-rich REITs to pair up with smaller operators that may be stressing about to the economy. Regency Centers, for one, is considering investment with developers that face financing challenges, according to executive vice president and West region president Nick Wibbenmeyer. “The capital markets, especially for construction debt for local developers, is effectively frozen,” he said on an earnings call. “We’re moving from coffee conversations that started 90 days ago into real dialogue and real negotiations and analysis of these opportunities. It's in the early stages, but the early stages are very important to growing a meaningful pipeline.”

Retail Sales Per Square Foot Continued to Climb in 2022

Retailers have spent the past couple of years rightsizing their store portfolios, and the results are showing. The top-performers by annual sales per square foot, according to Datex: Beauty supply stores at $773, fast-food establishments at $739, supermarkets at $688 and restaurants at $663. Most retail categories tracked by Datex and ICSC showed growth in sales per square foot in 2022. Movie theatres rebounded, experiencing a 49% increase over 2021. Beauty supplies rose 38.9%, home improvement 34.5% and fitness 32.2%.

ICSC INDUSTRY INSIGHTS: How other sectors fared and the latest performance data

5 More Retailers Making Headlines

After posting flat sales growth for the fourth quarter, department store chain Dillard’s said it will close three of its 247 full-line stores. The company said cosmetics and ladies’ apparel had stronger performances during the holiday shopping period, while home and furniture underperformed expectations. Dillard’s plans to open one new store this year, a 140,000-square-foot unit at The Empire Mall in Sioux Falls, South Dakota, in the spring of 2024.

This year, Target wants to double the number of same-day packages it delivered in 2022, aiming for 50 million. To support that growth, the retailer is spending $100 million to add six sorting facilities to the nine that already exist in the U.S. Target’s sorting facilities process merchandise that third parties can deliver to surrounding neighborhoods. Since its first sorting center opened in 2020, the number of same-day delivery orders Target has processed has increased 150%.

TJX Cos. is targeting empty big boxes for expansion, president and CEO Ernie Herrman told investors on an earnings call. “We're prepared to take advantage of the terrific real estate availability that we are seeing,” he said. “With the increase in store closures by some other retailers, we are in an excellent position to open new stores in some of our target markets. Further, we see additional opportunities to relocate existing stores to more desirable locations and to seek out more favorable terms when leases expire.” The company plans to grow its square footage by 3% annually and has upped HomeGoods’ long-term target to 1,500 stores. The company’s 2023 plans call for 30 new T.J.Maxxes, 34 new HomeGoods and 12 new Sierras.

Dick’s Sporting Goods acquired specialty outdoors gear chain Moosejaw from Walmart. Moosejaw operates 13 streetfront shops in Arkansas, Colorado, Illinois, Kansas, Michigan and Missouri. Like Public Lands, a banner that Dick’s launched in 2021, Moosejaw focuses on outdoors goods. Moosejaw’s CEO will report to the president of Public Lands, which operates seven stores.

Spanish fast-fashion brand Mango is in expansion mode in North America after several years of dormancy in the region. This year, the chain will open seven stores at Brookfield Properties marketplaces in California, Georgia and Texas. The apparel brand aims for 40 U.S. stores by 2024; it opened its first U.S. store in 2006 and currently operates 10 in the country, including four in Florida and one on Manhattan’s Fifth Avenue. Mango also opened its first Canada store, this week. The 5,000-square-foot Yorkdale shop is the first of eight Toronto-area units Mango plans to open through July.

Retail Regains Favor in Net Lease

The volume of U.S. retail net lease property transactions plummeted 42% year over year in the fourth quarter, according to CBRE. Still, retail properties outperformed the market overall. Total net lease investment volume decreased by 63%, as interest rate hikes drove buyers from the market. As investors bought fewer industrial and logistics properties, the retail sector’s share of the overall commercial net lease market increased to 24%, or $3.1 billion, from 15% a year ago. Meanwhile, net lease retail cap rates changed little during the quarter, settling at 5.6%.

4 Recent Retail Net Lease Deals

Red Mountain Group purchased 20 empty big-box stores totaling 463,427 square feet from Big Lots for $47.5 million. Most are in Northern and Southern California. Red Mountain’s leasing team executed eight leases prior to the close of escrow.

A 12,460-square-foot San Antonio property occupied by Walgreens traded for $5 million. Marcus & Millichap represented the seller.

A 2,225-square-foot Batavia, Illinois, building occupied by Starbucks sold for $2 million. Constructed in 2022, it features a drive-thru and outdoor seating. Marcus & Millichap represented the seller, a limited liability company, and the buyer, a private investor.

A freestanding, 1,127-square-foot property leased to Sonic in Columbus, Ohio, traded for $1.25 million. Northmarq represented the Missouri-based seller, and Hamman Real Estate represented the California-based individual buyer.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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