Retail Traffic

On the Surplus

Retail Traffic: How much excess space are you seeing enter the market right now?

Matthew Bordwin: I can't give you any particular number with regards to square footage, but the state of the retail market right now is not good. Every day it seems a retailer is either filing bankruptcy or announcing store closures. And even healthy retailers are looking to get out of locations that are not working for them, and it's happening more and more.

RT: Which sectors seem to be hit the worst?

Bordwin: Any specialty retailer that's got a non-essential product, it's not a good time for them. In the furniture sector in particular there has been an extraordinary number of retailers that have disappeared and it's clearly a function of what's going on with the subprime market. Restaurants are seeing trouble, as people stay home more. There are not many sectors that are doing well right now.

RT: How hard are you finding it to secure replacement tenants for the spaces you are currently marketing?

Bordwin: It's difficult across the board right now. We are just finding that retailers' expansion plans are being held back, so unless you happen to have a location that they've been looking at and wanted for a while, we are hearing, “We already targeted the stores that we want for this year.” Three years ago, they'd say “We already have our plans for the year, but boy, we really like those 20 locations.” That type of deal has dried up.

RT: Are there sectors that are growing?

Bordwin: I think the types of retailers that will benefit from what's going on will be discount and off-price chains. As people get more conservative with their spending they will be looking to go to the wholesale clubs more and off-price clothing stores. Anything with a discount attached to it has a better opportunity in this market than the average retailer.

RT: How worried are landlords about the current situation?

Bordwin: I think there is a disconnect between landlords and retailers right now, so the number of leasing deals that are happening is decreasing. Landlords have not yet reduced rents or done what they needed to get the marketplace moving along again. But they will need to do something to lease their space.

RT: Do you think landlords might help matters by lowering rents and offering greater concessions?

Bordwin: I am sure in certain situations it's happening already. But I have no sense as to what level rents will have to drop to for retailers to start back on an expansion path. What happens in markets like these is everyone gets scared, and even if retailers start doing more transactions, they will do their due diligence and make sure that the stores they are opening make sense. When money is good, sometimes they open stores at a crazy rate just to keep expanding. In the down cycle, that changes.

RT: What kinds of properties do you think will be most affected?

Bordwin: The class-A locations will continue to do well — retailers that have traditionally been in the class-B locations will be able to get in and take over space when other chains decide to close their stores. It's the [lower class] locations that I think will bear the brunt of the downturn.

Managing Director and Co-Group Head of Real Estate Services KPMG Corporate Finance LLC

TAGS: News Retail
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