NEW YORK (Reuters) - U.S. mall operators have to work with their tenants and make concessions if they want to avoid more store closings to avoid feeding a cycle of vacancies, a retail real estate expert said on Wednesday.
“It’s inevitable there will be a consolidation of the shopping center market,” Nina Kampler, executive vice president at Hilco Real Estate, told the Reuters Global Retail Summit on Wednesday.
“I think that with a reality check across the board, landlords would be more compromising and landlords (would be) understanding that they have to help to keep this industry viable.”
The economic crisis has swept away a number of U.S. retailers such as electronics chains Sharper Image and Circuit City, jewelry and housewares chain Fortunoff, and department store Mervyn’s.
But now it is hitting retail landlords such as: Simon Property Group Inc (SPG.N), Developers Diversified Realty Corp DDR.N and bankrupt General Growth Properties GGWPQ.PK.
Kampler, who works with companies trying to dispose of troubled retail locations, expects more retail bankruptcies in the coming months, as consumers continue to file for personal bankruptcy. She forecast the 2009 holiday season would be even bleaker than last year’s as shoppers cut back on purchases.
That could lead to an uptick in store closures, which would squeeze landlords further, Kampler said.
Retail tenants often include co-tenant or adjacency clauses in their leases, which require the landlords to keep a certain number of stores in the mall to be occupied.
“The consumer is disincentivized by a dark miserable experience,” Kampler said. “It is depressing to be in a place where nobody else is.”
Landlords will have to more flexible in their negotiations to avoid one tenant’s departure indirectly causing others to flee, Kampler said.
“Retailers can’t pay that rental stream with a smaller amount of stuff coming off their shelves,” Kampler said.
Kampler said that malls and shopping centers are frequently facing vacancy rates of 10 to 15 percent now, but only a handful of chains that would want to take their place.
In 2008, the amount of space occupied by U.S. retailers fell for the first time since 1980 and has yet to recover, according to research firm Reis.
Retailers that would have added new locations this year have taken the year off, waiting for consumer spending to level.
“I would love for the landlords to take a reality pill and all wake up tomorrow as a group and say ‘Ok, we don’t like this, but there are a lot of things in life we don’t like ... and rather than say unless I get my $80 a foot I’m not renting to you... I wish the landlords would say, ‘Ok, I need you here. Let’s work something out.’”
But at the same time, Kampler said tenants should not to think of the recession as a “landlord bloodbath” but recognize that landlords also have to repay their lenders and as partners both sides could share some of the upside when the economy recovers.
Reporting by Emily Chasan and Phil Wahba