50%+ US departmental stores in malls to close by 2021, real estate firm now predicts

By: Auther Bett
Auther Bett
Auther V. Bett, CPA started reporting in the finance and accounting space in 2016. His interests span stocks, bonds,… read more.
on May 2, 2020
  • A new Green Street Advisors report indicates that at least 50% of US department stores in malls will shut down
  • The pandemic has forced big retail stores such as Macy’s, J.C Penny, and Nordstrom to close down temporarily
  • Mall owners are already reporting strained finances as tenants are increasingly defaulting on rent payment

A report has emerged showing more than half of the department stores in US malls could close permanently by the end of 2021. According to the report by Green Street Advisors, the whole of the US is currently serviced by about 1,000 open malls, and 60% of the occupants are retail department stores.

The researchers say the looming demise of the US department stores has been occasioned by the current Coronavirus pandemic that has slowed down the country’s economy to decades low, with most companies continuing to register negative returns.

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The Covid-19 menace has forced renowned department stores such as Macy’s (NYSE: M), J.C Penny (NYSE: JCP), and Nordstrom (NYSE: JWN) to shut down temporarily, with the situation having worse effects on already struggling retailers.

A slowdown in revenue coupled with pressure from financiers is likely to push some retailers out of business, and the pressure will spread to the mall owners, the report said.

A Green Street Advisors’ analyst Vince Tibone told CNBC that for a while now, it had been a matter of “kicking the can down the road.”

Already, some tenants are considering invoking their co-tenancy agreements to lobby for rent relief or early lease break.

According to Tibone, “many malls will now be faced with multiple anchor vacancies, a tough place to come back from, especially in an environment where demand for space is virtually non-existent.”

“This begs many questions. What will a mall redevelopment look like post-Covid-19? Backfilling with any retail could be tough and most non-retail development now likely doesn’t pencil,” added the analyst.

Failing tenancy

Penny, which is headquartered in Dallas and operates more than 800 stores takes up about 19% of total mall anchor space, Green Street Advisors reported. Macy’s and Seas both take up about 18% and 4% respectively. Other store operators including Dillard’s (NYSE: DDS), Nordstrom and Lord & Taylor account for approximately 20% of America’s total mall anchor space, the research further indicated.

Owners of malls are already reporting strained finances as several tenants are defaulting on rent payment. That may result in some renters handing over mall keys to lenders owing to failed loan repayments.

While circumstance may change, one thing remains clear, the mall rental landscape is set to undergo material changes between now and next year.

“The only certainty is that there will be far fewer department stores in the future and malls will need to adapt,” Tibone noted.

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