Bargain retail lifts U.S. shopping centers as big names stumble

Sun Mar 16, 2014 10:10am EDT
 
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By Tim McLaughlin

BOSTON (Reuters) - Bargain store chains are flooding into North American malls and shopping centers like never before, upstaging old mainstays like J.C. Penney and Sears that are reeling from the one-two punch of an ailing economy and competition from online stores.

"We're seeing a seismic shift in retail shopping centers," said Garrick Brown, director of research at real estate firm Cassidy Turley. "The challenges of the weak economy are being replaced by the challenges of e-commerce."

The shift may reflect some consumer pain, but it has brought plenty of winners, too. Commercial real estate rents are rising, and many retailers, especially bargain chains, are in better shape than they have been since the Great Recession in 2008, analysts say. Shopping center vacancy rates in 60 major U.S. markets fell to 8.6 percent at the end of last year from 9.5 percent a year earlier, reflecting 38 million square feet of occupancy growth, according to Cassidy Turley research.

As a result, price appreciation among retail assets led all commercial property types in 2013, rising 23 percent, according to Moodys/RCA CPPI.

J.C. Penney Co Inc and Sears Holding Corp are retrenching and fighting for survival, raising a red flag for malls where, as anchor tenants, they draw foot traffic to nearby smaller stores.

Meanwhile, Staples Inc and RadioShack Corp earlier this month hit the U.S. commercial real estate market with plans to close a combined 1,325 stores. Analysts said they were slow to react to declining foot traffic and the surging amount of consumer shopping moving to the Internet.

U.S. shopping center owners say they have had no reason for alarm. With new retail construction at historically low levels, they are getting help from a stable of discount retailers. Costco Wholesale Corp, T.J. Maxx, Marshalls, Dollar General, Nordstom Rack and Ross Stores have been quick to fill vacancies.

Many of those stores are in great shape. Shares of bargain chain operators TJX Companies Inc and Dollar General Corp have risen 36 percent and 19 percent, respectively, over the past year as they open stores at a rapid clip.   Continued...

 
Workers prepare a new Ross store which is opening soon in Broomfield, Colorado in this file photo taken February 27, 2014. REUTERS/Rick Wilking/Files