Commentary: How Sears’ bankruptcy will impact retail real estate
While this event has long been anticipated, backfilling department-store real estate always is challenging. Sears’ bankruptcy will hasten the evolution of many malls into centers with a bit less retail but more of other uses, such as apartments, restaurants, hotels, offices, distribution and entertainment.
Most retail-center owners have anticipated significant Sears and Kmart closures for many years. But the recovery for properties facing an imminent store closure will take a long time, given that this is perhaps the most complex retail bankruptcy ever, it typically takes 18-36 months to backfill a vacated department store, and developing or subdividing a department store is an expensive process.
There are multiple solutions for vacant boxes, but none are quick. Boxes in major markets will be less challenging to repurpose than those in secondary and tertiary markets. (Generally, Kmarts are in less-prime locations than Sears.)
Due to its history as a developer, Sears often has the best or second-best anchor slot in a given mall. However, many of Sears’ stores are in B-grade malls.
We expect that REITs and other mall owners will actively pursue other uses like multifamily and hotels in markets that justify new construction. There is no single, scalable reuse option for these properties. Each store site is unique, so redevelopment or re-tenanting efforts will vary widely, depending on trade area, capital availability, plans for the rest of the mall, etc.
The impact on other retailers will be limited. Because this event has been so widely anticipated for so long, many leases already have excluded Sears as a named co-tenant. Kick-out clauses, also known as co-tenancy triggers, have been renegotiated in many leases in favor of retail-center owners in past years in this regard.
Sears’ traffic draw has waned for many years, so the Sears wing of many malls typically includes local tenants that are not necessarily dependent on Sears. Given Sears’ protracted decline, there isn’t much of a sales vacuum left by its closures for competitors to try to fill (a la Toys “R” Us).
Most retail-center owners have anticipated significant Sears and Kmart closures for many years. But the recovery for properties facing an imminent store closure will take a long time, given that this is perhaps the most complex retail bankruptcy ever, it typically takes 18-36 months to backfill a vacated department store, and developing or subdividing a department store is an expensive process.
There are multiple solutions for vacant boxes, but none are quick. Boxes in major markets will be less challenging to repurpose than those in secondary and tertiary markets. (Generally, Kmarts are in less-prime locations than Sears.)
Due to its history as a developer, Sears often has the best or second-best anchor slot in a given mall. However, many of Sears’ stores are in B-grade malls.
We expect that REITs and other mall owners will actively pursue other uses like multifamily and hotels in markets that justify new construction. There is no single, scalable reuse option for these properties. Each store site is unique, so redevelopment or re-tenanting efforts will vary widely, depending on trade area, capital availability, plans for the rest of the mall, etc.
The impact on other retailers will be limited. Because this event has been so widely anticipated for so long, many leases already have excluded Sears as a named co-tenant. Kick-out clauses, also known as co-tenancy triggers, have been renegotiated in many leases in favor of retail-center owners in past years in this regard.
Sears’ traffic draw has waned for many years, so the Sears wing of many malls typically includes local tenants that are not necessarily dependent on Sears. Given Sears’ protracted decline, there isn’t much of a sales vacuum left by its closures for competitors to try to fill (a la Toys “R” Us).