Rising Mall Vacancies Creating a Renter's Market

(MoneyWatch)  Looking for ways to make lemonade from this lemon of an economy? Stuck with high rent or a second-rate space you leased when the market was booming? Try renegotiating your lease -- with chains closing stores and reducing planned expansions, and new construction overhanging the market, shopping center landlords show increased willingness to deal.

CoStar's Retail News Roundup reports that retail construction starts in the first quarter were 6 million square feet, a five-year low. Vacancy rates on new retail construction started to rise in 2005; 13 percent of the 90 million square feet brought online in 2006 is still vacant, and 22 percent of the 89 million square feet completed in 2007. That's a substantial overhang that causes CoStar, a real estate information firm, to predict a 28 percent vacancy rate for shopping centers completed this year.

On top of that, the International Council of Shopping Centers predicts 5,770 closings in 2008, up 25 percent from a year ago and including big names like Foot Locker, Ann Taylor, and Zales Jewelers.

Those chains' misfortune could be your opportunity to trade up to a better location or reduce occupancy costs. "Take Sharper Image for example, as they're closing 90 stores," Ivan Friedman, President and CEO of RCS Real Estate Advisors, told CoStar's Sasha Pardy. "Their locations are pretty much 50-yard line, 4,000 square feet, very wanted mall locations and a very wanted size. While landlords would normally have someone for that immediately, now they're saying 'It's great I get this back, but who do I have to rent it to?'" Is there a troubled chain in your center whose space you've been secretly coveting? Speak now.

Pier 1 Imports used the slowing market to its advantage in lease negotiations, and wound up closing fewer stores than it planned, 79 instead of 100, CFO Cary Turner said on an April 10 conference call. "We are looking at every single store, at every single deal that the landlord presented to us," Turner said. "In some cases we wanted to give some stores an extra year, which the landlord gave us. ... Other stores came back very strongly and we've just taken them off the list." Center owners would rather take a hit and keep space occupied than face the bigger headache and unknown long-term cost of a vacancy.

Elsewhere on BNET, I found a checklist of real estate lease terms. Another helpful piece from Inc. tells how to renegotiate your lease. Bottom line: Treat your landlord as an ally to keep both of you in business.

(Abandoned Mall image courtesy of hive, CC 2.0)