As the number of prospective small tenants continues to shrink, and in view of a seed-capital market that remains challenging for mom-and-pops, vacancy rates among small shops have become the Achilles heel for many a landlord, panelists said today at ICSC’s Open Air Summit, in Dallas. Moderator Michael V. Pappagallo, COO of Kimco Realty, noted that even while Kimco’s vacancy rate for big-box spaces remains at an enviable 2 percent to 4 percent, its spaces measuring less than 10,000 square feet are suffering rates of 12 percent to 18 percent — an all-too-common tale these days.
But panelists disagreed about whether the small-shop problem is cyclical or long-term. “I think it is largely structural, and I see it for a long time to come,” said Christopher Conlon, executive vice president and COO of Acadia Realty Trust. The fundamental changes occurring in the segment are simply extensions of problems the industry was beginning to suffer before the recession, said Robert Breslau, president of real estate investment for Stiles Corp., of Fort Lauderdale, Fla.
Beth Azor, president of Fort Lauderdale–based Azor Advisory Services, says she believes there are remedies for many of the vacancies, some of which are in elbow spaces or other hard-to-lease locations that require creative thought. One solution would be to move some nonretail tenants into those spaces to clear the prime end caps for national retailers and restaurants, she said. Azor’s firm helped one local tenant expand from just one small deli to nine throughout the area. Encouraging well-vetted small tenants can create traffic generators that eventually help lure national tenants that may previously have been ambiguous about a center, she said.
Some of the solutions proposed were more radical. Breslau said that in one case his firm resorted to tearing down a vacant 10,000-square-foot center to make way for a bank pad site. But Conlon insisted that the tear-down approach is the exception to the rule and that consolidation and recasting of some spaces is a more viable strategy.
Pappagallo noted that yogurt shops, specialty retailers and dollar stores are stepping into the breach in many cases, while Azor said she is actively pursuing growth businesses, such as health and beauty shops, fitness centers, spas and orthopedic operations, or niche retailers like soccer-supply and dance-wear stores. “Uses involving children’s activities seem to be growing and doing well,” she said. Conlon said the Department of Motor Vehicles draws big traffic as an anchor of one of Acadia’s centers. Co-tenants are discovering that even dialysis centers, once considered a negative use, draw patients who have to be driven to the center by someone who typically shops or eats nearby.
Azor said she has hired recent college grads to canvas the neighborhood for tenants. “You have to recruit people who will knock on doors,” she said. “You have to build your bench. It will pay off in the long run with fresh new talent.”
One of her tactics for finding tenants is to contact restaurants and retailers that are winners of newspaper competitions. “They already have a built-in traffic and are more receptive to expansion.”
Compiled by the staff of Shopping Centers Today. © March 01, 2012 International Council of Shopping Centers.