The recent collapse of brands like “Toys R Us” and Claire’s has left many real estate investors wondering what will happen to all the retail space that’s suddenly up for grabs. Many landlords will now have huge holes in their retail space to fill, and there aren’t a lot of tenants out there that will want that kind of investment opportunity.
After Toys R Us and Claire’s real estate became some of the latest victims in the retail decline, the liquidation of these brands has dumped millions of real estate square feet onto a market that’s already struggling with vacancies caused by store closures and retailer bankruptcies. This trend has been escalating rapidly since eCommerce has risen and shoppers continuously turn towards the internet.
Filling the Left Over Real Estate Space
At this point, many experts believe that it will be difficult to find a viable solution for two companies that had so many locations. Most businesses don’t really need more locations or stores right now, and Toys R Us and Claire’s real estate have shopping solutions everywhere, from regional malls to community strip centers. Many centers will now be in the hands of publicly traded investment trusts who will be able to lease the space but may struggle with declining values.
Ultimately, the degree of success that landlords see when it comes to filling empty stores will depend on the locations of each property and their quality. The best locations will fill up faster as new companies look for opportunities to reach out to their customers in person.
Sharestates CEO and Co-founder, Allen Shayanfekr told New York Business Journal: “It’s no secret that retail-related real estate has been suffering for quite a while now. Toys ‘R’ Us typically operated in very large facilities — leaving few retailers that could actually fill its shoes. We anticipate that the Toys ‘R’ Us real estate that is rented will likely sit stagnant for quite a while before landlords are able to find suitable replacements. In the worst case scenario, those landlords that have mortgages may need to fire sell their properties.”
When asked what Sharestates can do to fix this problem Shayanfekr states: “We’re a lender/syndicator. There’s a possibility that anyone looking to make a quick purchase will come to a private lender like us for quick results, or even to syndicate the equity capital needed. Given the time constraints some landlords might face, it’s unlikely that banks will be able to finance these purchases and given the size of these locations, the market size of buyers could be relatively small — meaning buyers will need both debt and equity financing that can move quickly. That’s what Sharestates specializes in – fast capital!”
Strong Commercial Real Estate
Even with vacancies to contend with, some properties remain viable commercial real estate according to investment professionals. Locations around power centers, discount department stores and so on might be easier to fill than standalone locations that don’t have additional drawing power. Expanding retailers like Ross Stores, Dick’s Sporting Goods, and so on may help to draw in a healthier crowd.
Other chains that are roughly the same size as Toys R Us estate, such as Bed Bath and Beyond, and Best Buy will be focusing on expanding their online presence right now, and remodeling the existing stores they have, rather than building new locations. Target has commented that it currently plans to open dozens of much smaller locations in the next two years, but these will be near college campuses and in larger cities.
An Opportunity for Real Estate Investors
The departure of such a huge tenant like “Toys R Us” or Claire’s will give many landlords around the country an opportunity to reinvent their shopping centre experience and upgrade to make their system more online-shopping-proof. Redevelopments could lead to significant improvements in experience for customers who are looking for something beyond the standard online shopping experience.
With many other big-box retailers in the world shutting down, and large chains like Staples Inc. struggling to keep their cash flow running smoothly, there’s going to be a lot of retail space available in the next year. However, this does mean that potential replacement tenants will have a lot of negotiating power to work with.