Business | Economy
US strip malls suffer as retailers disappear
Landlords left with vacant lots as economic slump sees increasing number of stores facing problems.
- Reuters
- Published: 23:32 December 8, 2008
New York: Along a congested highway in New Jersey lies a small strip mall whose challenges illuminate those of malls throughout the the US as their tenants are brought low by the economic slump.
In the past several weeks, the eight-store Paramus Towne Square mall in Paramus has seen the parent companies of two of its anchor stores, home goods seller Linens 'n Things and electronics centre Circuit City, file for bankruptcy.
And, earlier this year, the mall had to find new tenants for a Borders bookstore, which closed when its parent company cut costs.
"If you are an owner of a mall or a small strip centre, it's been a very difficult year and likely to get worse next year," said Mark Claster, a partner at the turnaround and financial advisor, Carl Marks Advisory Group LLC.
Even more so than mega-malls, strip malls - with a dozen or so stores stretched along busy US highways - define the American retail landscape, and their owners are suffering.
'Taking a beating'
"Landlords are taking a beating," said Bob Carbonell, chief credit officer for retail credit rating service Bernard Sands.
US retail vacancy rates rose to 6.6 per cent in the third quarter from 6.1 per cent a year earlier, according to CoStar Group, a provider of commercial real estate information and data.
Shopping centres, a category that includes strip malls, are doing much worse than that, reporting vacancy rates of 9.4 per cent. Larger, enclosed malls are doing better, with vacancy rates of about 3.9 per cent.
The store closings have come as economic downturn forces retailers to scale back expansion plans, close outposts or file for bank-ruptcy. And the trend is expected to accelerate as the financial crisis has tightened credit. The cuts can be devastating to mall owners, who see empty space hurting rental income. It is also troubling to established tenants.
At the Paramus mall, the Circuit City store is still operating as the parent company reorganises, while the Linens 'n Things store is liquidating. For now, the Linens 'n Things sale attracts herds of bargain-hungry shoppers, but when the stall vacates, its 60,000 square foot space could be empty until as late as the last quarter of 2009, the mall's leasing agent said.
And, while the Circuit City store is still open, there is a risk the chain could shut more stores, on top of the 155 scheduled to close.
To be sure, bankruptcy does not automatically mean a store will close. But it can put pressure on landlords to renegotiate leases for lower rents. And some customers refrain from shopping at bankrupt chains for fear stores could disappear and not honour returns, warranties or gift cards.
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