Faster Pace of Retail Openings Seen

THE OVERALL RETAIL REAL ESTATE INDUSTRY will face another slow growth year in 2011, though the pace of store openings will gradually improve throughout the coming months, industry insiders predict. Given the current brisk pace of holiday sales and availability of vacant storefronts at affordable rents, retailers with cash in their coffers will step up expansion announcements in 2011, predicted John

THE OVERALL RETAIL REAL ESTATE INDUSTRY will face another slow growth year in 2011, though the pace of store openings will gradually improve throughout the coming months, industry insiders predict.

Given the current brisk pace of holiday sales and availability of vacant storefronts at affordable rents, retailers with cash in their coffers will step up expansion announcements in 2011, predicted John Bemis, executive vice president and director of leasing and development with Jones Lang LaSalle Retail, an Atlanta-based third party property manager. In 2009 and 2010, store openings decreased slightly year-over-year for both the Jones Lang LaSalle portfolio and the U.S. retail sector overall, he noted. But starting this year, many discretionary retailers will finally be in a position to open new stores.

Retailers that plan to step up expansion campaigns in 2011 include dollar-store chains Family Dollar [3] and Dollar General [4], as well as specialty retailers such as Uniqlo, Ann Taylor and Sterling Jewelers.

Overall, U.S. retailers plan to open more than 65,000 new stores in the next two years, according to research by Retail Lease Trac and RBC Capital Markets. The Retail Lease Trac and RBC numbers are based on a database of 2,000 retailers (although it excludes some larger chains like Wal-Mart [5] and Target).

Rich Moore, an analyst with RBC Capital Markets, who helps compile the report, projected that retailers would open approximately 35,000 of those new stores in 2011 alone. However, Michael Wiener, president and chief executive officer of Excess Space Retail Services, a real estate disposition and lease restructuring firm, said he expects retailers to expand as well, but not as quickly. Weiner projected about 20,000 new stores in 2011 and another 40,000 to 50,000 in 2012.

“I think people are just getting back into the marketplace and trying to understand what kinds of deals they can get,” Wiener said. “We still think things will be on a very slow upswing, but we do think that there will hopefully be at a minimum a slow and steady recovery in retail.”

At the same time, Wiener said he expects that this year retailers will continue to shutter stores at roughly the same pace as in 2010, or that store closings will decrease only slightly year-over-year. Through the third quarter of 2010, retailers closed approximately 4,680 stores, according to data from the International Council of Shopping Centers. That puts the industry on pace to surpass 2009's total of 4,811, but finish below the 2008 peak of 6,913 closings.

The figure for 2010, however, should come in below predictions offered at the beginning of the year, when many in the retail industry thought retailers might close up to 8,000 stores this year.

Even if store closures remain at the same level in 2011 as 2010, it could still be a positive trend for retailers, noted Andy Graiser, co-president of DJM Realty, a Gordon Brothers Group company which specializes in strategic real estate solutions, dispositions and valuations.

Most of the closings will likely involve underperforming stores that have failed to meet retailers' return hurdles and so dropping them will contribute to the companies' financial health. In addition, some retailers might shutter new concept divisions that haven't performed to expectations, returning instead to their core brands.

“I don't see chains closing down, I just think you will see a lot more pruning,” Graiser said. “Pruning is helpful because companies are being disciplined on what their hurdle rates need to be, and that makes them much healthier and stronger.”

Graiser predicted that store closings in 2011 will total about the same as in 2010. Bemis, on the other hand, thinks closings might return to 2005 levels, when the industry closed 4,269 stores.