Retail in the US is undergoing another profound convulsion, as the original disrupters, malls, are feeling the bite of e-commerce’s growing dominance.
Still, e-commerce is not solely to blame; the advantage of a smaller physical footprint and the rent savings it allows such companies to make, stands in contrast to traditional retail’s expensive stores.
Despite sales at smaller chains falling, the Wall Street Journal notes, commercial retail rents have not fallen at the same pace. In many locations – especially in prime city-centre areas like Manhattan, LA, and Dallas – rents are higher than at pre-recession levels.
The Financial Times reported that more than 7,400 stores have closed this year, as mall outlets fall to a more varied online/offline offer, reflecting deeper changes in the retail space.
More practical issues abound, however. In New York, department chain Barneys went to court after its landlord increased its annual rent from $16.2m to an eyewatering $27.9m. It lost the case and has now brought in restructuring advisers, known to be considering several options, including bankruptcy.
In San Francisco, commercial rents have grown 53% from 10 years prior, while in Miami, rents are up 46%. For landlords, too, there is something of a bind leading to higher rents: more spaces are vacant as physical retailers cut investment. It is in their interest to maintain the value of their assets, which allows them to borrow money against them. It’s a waiting game for many as they hope for the market to improve.
Now, despite the closures, vacancy rates remain relatively low: according to CBRE figures, just 5.3% of space in malls was available for lease in Q2. Yet these figures don’t illustrate the disparity between top performers (97% occupancy) compared to the worst (67% occupancy). Ultimately, the issue comes down to retail as an experience and event rather than the most convenient way for customers to buy items.
Still, e-commerce is not solely to blame; the advantage of a smaller physical footprint and the rent savings it allows such companies to make, stands in contrast to traditional retail’s expensive stores.
Despite sales at smaller chains falling, the Wall Street Journal notes, commercial retail rents have not fallen at the same pace. In many locations – especially in prime city-centre areas like Manhattan, LA, and Dallas – rents are higher than at pre-recession levels.
The Financial Times reported that more than 7,400 stores have closed this year, as mall outlets fall to a more varied online/offline offer, reflecting deeper changes in the retail space.
More practical issues abound, however. In New York, department chain Barneys went to court after its landlord increased its annual rent from $16.2m to an eyewatering $27.9m. It lost the case and has now brought in restructuring advisers, known to be considering several options, including bankruptcy.
In San Francisco, commercial rents have grown 53% from 10 years prior, while in Miami, rents are up 46%. For landlords, too, there is something of a bind leading to higher rents: more spaces are vacant as physical retailers cut investment. It is in their interest to maintain the value of their assets, which allows them to borrow money against them. It’s a waiting game for many as they hope for the market to improve.
Now, despite the closures, vacancy rates remain relatively low: according to CBRE figures, just 5.3% of space in malls was available for lease in Q2. Yet these figures don’t illustrate the disparity between top performers (97% occupancy) compared to the worst (67% occupancy). Ultimately, the issue comes down to retail as an experience and event rather than the most convenient way for customers to buy items.
Sourced from the Wall Street Journal, Financial Times
