Retail failures open up prime locations for Target, others

Bloomberg

As landlords struggle to find tenants for a glut of empty commercial spaces, businesses that have fared relatively well through the pandemic now have the upper hand in America’s real estate landscape.
With thousands of stores closing permanently, the dislocation is creating a buyer’s market to the benefit of Shake Shack Inc, Levi Strauss & Co, Target Corp and others with healthy balance sheets that are aiming to broaden their footprints.
“There’s going to be opportunities for us to find locations that frankly weren’t available just six months ago,” said Rob Lynch, chief executive officer of Papa John’s International Inc, which this week reported a 28% jump in same-store sales across North America last
quarter. The chain is accelerating expansion plans and plans to add as many as 300 new
locations a year, he said in an
interview.
The coronavirus pandemic has turbocharged the slow-motion collapse of the American retail industry, forcing companies big and small to shut down as consumers cut spending on clothes, restaurant meals and discretionary purchases. Department store JC Penney Co, restaurant chain California Pizza Kitchen Inc, apparel retailer Brooks Brothers Group Inc and even the owner of Chuck E Cheese have filed for bankruptcy in recent months.
The moribund environment helped drive asking rents in the retail mecca of New York City during the second quarter to the lowest level since 2011, according to a report by CBRE Group Inc.
It’s likely to keep falling through the rest of the year, particularly as companies use bankruptcy to renegotiate or break leases.
At the same time, availability is reaching new highs. The count of ground-floor openings across the city’s premier shopping corridors increased to 235 from 226, passing the previous peak in 2018.
The circumstances are creating a “once-in-a-generation” discount for new tenants, said Steven Soutendijk, an executive managing director with global real estate firm Cushman & Wakefield.
“We have started having a lot more conversations with tenants saying, ‘We’re going to be taking advantage of this,’” Soutendijk said.
The key, according to Shake Shack CEO Randy Garutti, is to act quickly.