Big box backfill at higher rents | Ben Haverty

The retail real estate market saw hundreds of anchor tenant closings over the past year from Bed Bath & Beyond, Buy Buy Baby, Rite Aid and Party City, and the hits have kept coming this year. Macy’s announced it plans to close 150 stores over the next three years.

But for retail real estate owners, these closures have helped them improve their portfolios over the last year, by backfilling an anchor to a more appealing tenant at a higher rent.

Anchor stores that were under long-term leases vacating early allows their landlords to raise the rents in line with the market at a time when supply constraints are giving owners leverage to raise rents.

Shopping centers in the U.S. were at 5.3% vacancy at the end of the year, a record low, and rents have risen consistently. At the end of 2023, they were up 16.9% over 2019 and up 4.1% from the previous year.

Because the retail construction pipeline has been slow for years, when big-box stores are emptied they are quickly backfilled.  Over the past six years, craft store Hobby Lobby backfilled 43 spaces, Burlington backfilled 54 and Target backfilled 31 big boxes.

There used to be 40 million square feet of retail real estate built every year. Now, there are essentially less than a few million built. With so little new retail real estate coming onto the market, retailers are increasingly flexible in taking whatever space is available.

Expansion minded furniture retailers need to be mindful that, when negotiating for new locations or renewing older leases, they are in a landlord’s market.

Ben Haverty, leave of Colliers Furniture Industry Service Team, has more than 30 years of experience as an executive and entrepreneur in the furniture industry, operating retail stores, home delivery warehouses and regional distribution facilities.

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