With So Many Vacant Stores, E-Commerce Is Only Part of the Problem

From The Wall Street Journal:

Don’t blame all the vacant stores on e-commerce. Sky-high rents are squeezing retailers, too.

Although commercial retail rents are down from recent peaks, they haven’t fallen as fast as sales at struggling chains. The rents remain higher than prerecession levels in many prime shopping areas such as Manhattan, Los Angeles and Dallas.

In a high-profile example of this tug of war, Barneys New York Inc. has hired restructuring advisers and is considering several options including a possible bankruptcy filing, as it seeks to renegotiate the lease on its Madison Avenue flagship and other locations, according to a person familiar with the situation.

The landlord raised the annual rent on the Madison Avenue store earlier this year to $27.9 million, from $16.2 million, this person said. Barneys fought the rent increase but lost during an arbitration proceeding. Reuters earlier reported that Barneys had hired restructuring advisers.

The retailer also is looking at whether it makes sense to reduce the size of the 260,000-square-foot store.

. . . .

Landlords say it isn’t that simple. They argue retailers fueled demand with a flood of store openings coming out of the 2008 recession. And even when the landlords dangle lower rents, it is hard to tempt retailers to open stores when they are retrenching.

“We’ve cut rents by 30% and are offering all sorts of concessions, but we still have vacant space,” said William Friedland, a principal with Friedland Properties, which owns commercial real estate in Manhattan.

In other cases, though, landlords have an incentive to leave space vacant because slashing rents would violate their loan agreements, industry executives said. Moreover, any devaluation of the property would make it harder for them to borrow in the future.

“For these landlords, maintaining the valuation on their properties is more important than collecting an immediate rental stream,” said Richard Johnson, a partner in Odyssey Retail Advisors, a consulting firm that works with retailers and landlords. “It’s a waiting game, and many landlords would rather wait it out, hoping the market improves.”

Commercial rents in San Francisco are up 53% from a decade ago, and in Miami they are 46% higher, according to CBRE. Even in smaller cities, such as Nashville and San Jose, Calif., rents are up by nearly one-third.

Link to the rest at The Wall Street Journal (Sorry if you encounter a paywall)

1 thought on “With So Many Vacant Stores, E-Commerce Is Only Part of the Problem”

  1. > e-commerce

    Perhaps the stores are vacant because they’re not carrying enough of what people want to buy. Like bookstores, for example…

    A few years ago I needed a new spray nozzle for my garden hose. I went to several local stores looking for one. “No, we don’t carry those.” (hardware store) “Yes, we carry those, but that’s a summer item, and we’re only stocking fall items now.” (Wal-Mart and K-Mart) (and it was August)

    So, eBay and wait…

    I needed some spark plugs for my truck. A 10-year-old Chevy truck isn’t exactly a model T, but none of the local parts stores had the plugs in stock. They would get them from the warehouse in two days… I could get them from Amazon in the same amount of time, for less money, without having to drive to the store. Perhaps they could reduce their inventory of bobble heads, curb feelers, floor mats, and other trivia and stock some auto parts…

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