Landlords: Overbuilt’s now underbuilt, and business is good
Over the past 12 months, DLC Management Corp. and its investment partners have acquired seven open-air centers that, in total, comprise 1.5 million sq. ft. of retail space. Founder and CEO Adam Ifshin’s goal is to double the size of his center portfolio with capitalization, not new construction, and his new space is going fast.
“There are a lot of people who are trying to tie up space right here, right now, because they’re afraid it’s not going to be here tomorrow,” Ifshin told Chain Store Age on the floor of the ICSC New York Show during the second week of December. “We’ve had some bidding wars for 25,000-to-30,000-sq. ft. spaces.”
The space grab is, indeed, fearsome. Ifshin reported that DLC had signed two anchor tenants to leases that had been out for less than 30 days.
“In the last four weeks, we probably signed 200,000 sq. ft. of leases,” he said. “Increasingly, potential tenants are coming in and asking, ‘When’s this guy’s lease over, when’s that lease over?’ The smart tenants are thinking ahead, because, for now, there’s no way out of this situation.”
Regional mall re-maker Carmen Spinoso has been on a buying spree for the past few years. In 2022, his leasing team executed more than 2,500 leases that added up to more than 7 million sq. ft. of space across his 41-property portfolio. Today, his mall count is 55.
“If we get control of a department store, we’ll split it up and fill it with tenants like TJX, Dave & Buster’s, or Barnes & Noble,” said Spinoso on the exhibit hall floor. “Every property is different, and our first order of business is to determine what the local market really wants and target new tenants. We get good brands — even ones that may not be in an expansion mode — to look at malls in viable locations.”
Anthony Cafaro, Jr., is the co-president of the family-owned Cafaro Company, which operates more than 50 regional malls in towns such as Erie, Pa., Paducah, Ky., and Olympia, Wash. He said Cafaro is now seeing top retail, entertainment, and food and beverage brands eager to move into thriving middle markets.
In 2023, Cafaro’s 3 million-sq.-ft. Eastwood Mall in Niles, Ohio, welcomed a 159,000-sq.-ft. Meijer Superstore and a 63,000-sq.-ft. Bass Pro Shop Outlet.
“There’s not really any Class A space to be found in major markets, so institutional space is trickling down to the smaller markets,” Cafaro observed. “We are able to attract tenants like Meijer and Bass Pro Shop because we have always bought open acreage surrounding our malls to give us room to grow. And we carry no debt. That gives us the ability to be very creative.”
With space so tight, and equipment and construction costs so high, every developer Chain Store Age spoke with on the ICSC show floor was raising rents. Most chain real estate directors in the building, meanwhile, were still clinging to company-imposed rent guidelines.
Steven Levin, the CEO of Centennial, which owns and operates some 40 regional malls and lifestyle centers nationwide, thinks retailers need to de-emphasize the role of rents in their brick-and-mortar business plans.
“Your rent number should not be a number that is tied to your bottom line,” said Levin, who began his career as a retailer in his family’s chain of women’s specialty shops. “Find the locations where you can find the volume you need for your brand. Percentage rents would bridge the gap, but that concept has gone away. So, if you’re a landlord, you have to push the rents higher.”
According to Levin, the real challenge for retailers in a time of dwindling space availability is to focus on landing the space that will produce good volume and managing the inventory.
“Lululemon and Anthropologie are expanding, but in a very focused and selective effort,” said Levin. “Trying to scale the business too much and open too many stores—that’s where you start diluting the locations.”
A study done by Pew Research earlier this year found that 41% of workers in the United States who can do their jobs at home are now working hybrid schedules — some days at home and some in the office. That has bloomed new business at neighborhood centers that see increased visits and dwell times in their centers. It has also spurred more private investment in that particular sector of retail real estate.
“Consumer spending is healthy. Our occupancy is at an all-time high. More investors are coming in on the buy side for retail real estate,” said Jeff Edison, the CEO of Phillips Edison & Company, which owns and operates more than 300 grocery-anchored centers nationwide. “But these trends don’t linger over long periods of time. We think the market will begin to normalize next year, though property prices will likely remain at the same levels we’re seeing today.”
JLL’s president of retail, Naveen Jaggi, sees a light at the end of the tunnel for the resumption of retail real estate construction.
“Trump’s always talked pro-business and fewer government restrictions,” he said. “We’re foreseeing an easier borrowing environment in the years ahead and we’re likely to see the market continue to react accordingly. Right now, the market is reacting very positively.”
Despite inflation, Jaggi also predicted the continuation of strong buying power on the part of American consumers. Economic analysts focus too much on credit debt in appraising consumer financial strength, he said, and not enough on net worth. Housing prices continue to climb, and household net worth continues to rise, as well.
“Retailers are feeling really good right now because they’re feeling good about the American consumer,” he observed. “How are they feeling about securing locations over the next five years? That’s the big question. Where’s the domino going to fall for more product? Is it more retailer bankruptcies? Closed department stores providing surplus space? Where is that space going to come from? They’re not so worried about the situation today. They’re worried about 2026.”
