Some commercial users faring better than others in today’s economy
I hate to report downbeat news, especially when it involves commercial real estate. But as my clients and loyal readers know, I’m not one to sugarcoat the truth. The truth is, this promises to be a difficult year for the commercial industry.
Based on the latest commercial stats, the short-term prognosis looks bleak in our market and the majority of markets nationwide, as well. According to some retail real estate industry experts, worse-than-expected holiday sales, combined with the tight credit market and recession, will likely result in more store closings and retailer bankruptcies in the next six months. Britt Beemer, president of Americas Research Group, identified the following retailers as the “biggest losers” of 2008’s holiday shopping season: CVS, American Eagle, Macy’s, Belk, Walgreens, Dillard’s and The Sports Authority.
With nearly 5,100 store closings already identified by these retailers for this fiscal year (up 43% over total store closings in 2007, more are expected to trickle in as fourth quarter reports surface), resulting in an aggregate net loss of stores at these retail chains. According to a recent Costar report, the categories with the greatest number of net store closings in 2008 are: home accessories/furniture (-1,085 stores); electronics (-715 stores); and jewelry (-400 stores).
On the other hand, all is not lost. There are still sales and leases being negotiated. It’s just that some businesses and industries are likely to fare better than others in this economy, and therefore, are more likely to be relocating or expanding into new space.
For example, grocers (namely Publix) and similar “necessity retailers” traditionally do well regardless of the economy. After all, people have to eat, even if they spend less on food.
Here are some of the other retailers and retail types that I predict will survive, if not thrive in, the current downturn.
– Health & Wellbeing: Health clubs tend to be another beneficiary of tough times, particularly if they are reasonably priced, properly managed and well located. According to the latest stats available from the International Health, Racquet and Sportsclub Association, U.S. fitness industry revenues increased by 5% from $17.6 million in 2006 to $18.5 million in 2007. Also during that time, the number of clubs grew by almost 1% from 29,357 in 2006 to 29,636 in 2007.
In Southwest Florida, there are a couple of clubs that seem to be doing quite well. Since opening its third area location in Bonita Springs last May, L.A. Fitness has seen its membership boom.
In Cape Coral, although the owners of Ada’s Natural Foods closed their grocery store on Pine Island Road, they are expanding their same-site fitness center to accommodate demand. Reportedly, the club boasts more than 6,000 members. It is now in the process of converting the 12,000sf store to add to the existing 18,000sf facility. Elsewhere in Florida, Ada’s is expanding its grocery operations, with new stores opening in Naples, Boca Raton and West Kendall.
As more people look for affordable ways to relax and unwind, Massage Envy is poised for a great year. Its Fort Myers and Naples locations are enjoying brisk business, prompting the growing franchise to seek opportunities for expansion.
– Outlet Malls: Outlet malls are more popular than ever as shoppers hunt for the deepest discounts. According to the International Council of Shopping Centers, there are 216 outlet malls in the U.S. totaling 55.8 million sf and accounting for one-half percent of the $11 billion in total retail sales. Lee County is home to two major outlets: Miromar in Estero and Tanger Sanibel Factory Stores in south Fort Myers.
Since opening in 1998, Miromar has grown to 616,000sf and 140+ stores. When the next (and final) phase is completed, the mall will total 680,253sf and provide as many as 170 stores.
Tanger is smaller, but has a loyal following of locals and island visitors. It opened in 1993 and represents approximately 43 major manufacturers such as Nike, Tommy Hilfiger, Polo, Guess, Coach and Calvin Klein, and also contains a coffee shop and a deli.
– Value Apparel: Historically, discount clothing stores that offer a mix of moderately-priced to high-end merchandise have done well in Southwest Florida among shoppers of all backgrounds. Even shoppers who can afford to pay more for clothes love to brag about the deals they get at Target, T.J. Maxx, Ross and SteinMart. I expect they’ll hold their own this year and even gain market share as department stores struggle to survive.
– Wholesale Clubs: B.J.’s Wholesale Club and Costco have fairly well saturated the local market, at least for now, and seem to be doing extremely well. Also, Sam’s Club reportedly is looking for strategic infill opportunities in our area.
– Fast Food: It’s not really surprising that business at family-style and quick-casual restaurants has fallen off considerably in the last year, mirroring the decline in the economy. Instead, people who want the cheapest, quickest and most filling food are turning (or returning) to fast-food establishments to get it. In fact, I read recently that sales were up by 30 pecent or more at both Burger King and Subway restaurants nationwide.
Speaking of deep discounts, I expect this to be a banner year for thrift shops and second-hand stores. Goodwill, Salvation Army and the Abuse Counseling and Treatment Center are just a few of the local thrift stores whose sales help support their programs and clients. And in tough times, they are an excellent way for budget-conscious shoppers to indulge themselves while helping others.
Gary Tasman is executive director of Cushman & Wakefield’s Southwest Florida office. For more information, please contact him at (239) 489-3600 or gary.tasman@cushwake.com.