Retail landlords holding the bag

Times are tough for retailers, as the failures of Circuit City, Mervyns and Linens 'N Things attest. And that pain is translating into headaches for their landlords.

Owners of shopping centers are expected to see a jump in vacancies and declining revenue as even more stores shut down after a dismal holiday shopping season.

Holiday sales can amount to as much as 40 percent of annual revenue for retailers, and sales fell 2.8 percent this past season.

For those retailers still in business, many are seeing revenue shrink as financially strapped consumers spend less. So now some are trying to renegotiate rents with landlords to cut costs.

That puts pressure on landlords who already may have seen substantial revenue reductions from the loss of other tenants such as Circuit City, which went bankrupt in November. The company said this month it would close its remaining 567 stores nationwide.

In San Diego County, the collapse of Circuit City, Mervyns and Linens 'N Things put roughly 1 million square feet of retail buildings on the market. The three chains had a total of 25 stores in the county.

Yet despite the store closures, the news isn't all bad for the owners of San Diego retail centers. The ones in the best locations are attracting the attention of the handful of retailers still in expansion mode.

"We don't have a lot of big boxes that become available," said Reg Kobzi, a senior vice president with CB Richard Ellis. "Even in this economic climate, there are tenants willing to backfill those if they're in great locations."

Department store chain Kohl's, for example, recently assumed the leases of three former Mervyns stores in San Diego County – one in the College Grove Shopping Center, another in Mira Mesa and a third at an undisclosed location, according to bankruptcy court records.

In addition, the former Linens 'N Things building in Carmel Mountain Ranch reportedly has offers from three or four prospective tenants for the roughly 70,000-square-foot structure, according to brokers.

A Circuit City store soon will be available in the same shopping center, and a Mervyns is available next door.

"There are retailers still out there looking," said John Still, a senior vice president with Flocke & Avoyer Commercial Real Estate. "Specific to Carmel Mountain Ranch, there are some grocery users who have never been able to get in there because there was nothing available."

 

TxSandiago