Kmart Exiting 1M SF in Central Florida

The locations are: Orlando--3228 E. Colonial Dr.; 2620 N. Hiawassee Rd.; 4140 Town Center Blvd; in Apopka, FL--2302 Semoran Blvd.; in Kissimmee, FL--2220 Irlo Bronson Hwy.; in Ormond Beach, FL--1458 W. Granada Blvd.; in Rockledge, FL--282 Barton Blvd.; in Winter Haven, FL--2008 Eighth St.; and in Lakeland, FL--4275 U.S. 98.

Although not high-tech in design, the Kmart-leased buildings won't have to be retrofitted expensively to cater to local tenants but at the same time, the structures will present critical leasing decisions from owners.

"If an owner re-leases the space to low-credit tenants, they will probably use the existing structure," John M. Crossman, senior vice president/retail, Trammell Crow Co./Orlando, tells GlobeSt.com. "The problem is that low-credit tenants have low credit and typically pay low rents. For an owner to switch from a national to a local tenant, their [building] value automatically goes down."

Crossman says if an owner leases the space to creditworthy grocery tenants such as Publix or Winn-Dixie, the owners will most likely demolish the building.

"That may surprise people, but the building has little value and most credit tenants will want the building knocked down," Crossman tells GlobeSt.com. "The addition of the credit tenant will be good for the owner, but the owner will have demo and new construction costs, which will not be cheap."

The Trammell Crow executive doesn't think the estimated one million sf of vacant Kmart space will be an added burden on an already glutted, 49 million-sf retail market in Central Florida. "The key is location," Crossman says. "Good locations could actually see an upgrade" of a submarket where the Kmart building is located. But "tough locations will have real problems."

Crossman tells GlobeSt.com "the real problem today is a lack of active anchor tenants seeking new space." For example, he says Publix and Wal-Mart are "very active, but the dropoff is huge. Competition is great for the A locations, but there are very few buyers of B and C centers."

David W. Marks, president, Marketplace Advisors Inc., Orlando, agrees with Crossman that national or regional retailers are not likely to latch on to vacant Kmart space on an as-is basis.

"To backfill these vacant Kmarts, you will most likely have to subdivide the spaces, which is a very expensive process, dealing with building systems such as the electrical, mechanical and fire safety," Marks tells GlobeSt.com. "The types of users that generally go into these spaces are health clubs, flea markets and large backroom office users."

Like Crossman, Marks says that "in many cases, it is cheaper for a new user to raze the building and start from scratch, then to try and renovate these functionally obsolete buildings." He says "there are some vacant boxes around Central Florida that have been vacant for years," largely because "big-box retailers are presently consolidating after the unprecedented retail expansion that we have experienced over the last 15 years."

Marks says the primary reason Kmart is closing its stores is "because they are located in retail-saturated trade areas with competition from players such as Wal-Mart and Target." The only other large retailers in those areas are grocery stores. "In many of these locations, the grocery stores are also under pressure from the Wal-Mart Supercenters and SuperTargets."