How Was L.A. Impacted by Department Store Closures

LOS ANGELES—L.A. wasn't as impacted by major department closures last year as some other US markets. The density in Los Angeles helped to keep department stores here open, but that doesn't mean that there were no store closures. To find out how department store closures have affected the L.A. market and which stores have seen the most closures in this market, we sat down with Scott Burns, EVP and Los Angeles Retail Brokerage Lead at JLL.

GlobeSt.com: How has the Los Angeles market been affected by department store closures? 

Scott Burns: The impact thus far has not been significant, mainly because stores in Los Angeles are typically higher performing for most chains.  Performance and urban density has kept many of the large-scale department stores in our market off the early closure lists. . This will change with the closure of Nordstrom at the Westside Pavilion, Sears in Carson, JCP at the Village at Orange and a few others.

GlobeSt.com: Which stores have seen the most closures? 

Burns: Kohls has closed the most stores in our market, many of which remain vacant.  The challenge with these boxes has been that there are very few single tenant retailers looking for 70-80,000 square foot buildings, and in most cases these buildings are located in community or neighborhood shopping center environments.

GlobeSt.com: How will these closures impact the retail market, in terms of vacancy and rental rates? 

Burns: While the impact to date hasn't been realized,  we expect that that future closures will, in most cases, create opportunities, and in others, pose long term challenges.   By in large, department store buildings are located at the retail hub of the market and near other high volume retailers, which typically results in low vacancy rates and a lack of box opportunities.    These closures will allow certain retailers the direct opportunity to backfill portions of these stores and enter markets that they have been unable to in the past.  These closures will also allow landlords the opportunity to re-evaluate the highest and best uses for their assets.  As the evolution of the regional mall continues, many landlords have realized that malls are much more than a regional experience and that localized, daily needs offerings, such as grocery and fitness, can thrive.  I expect to see this trend continue.  I also expect to see ancillary uses such as creative office and multifamily to emerge as the highest and best uses for some buildings.

GlobeSt.com: Is there any concern about filling this space?

Burns: Yes and no.  Sophisticated owners of well-located urban department store buildings will likely have multiple options to pursue.  The concerns will be for the buildings that are located in the suburban communities, where demand and rents are lower and competition for large box space is higher.  In these cases, the challenge will not only be finding a sufficient number of tenants to occupy the buildings, but also to achieve the rent needed to justify the cost to demise and reposition these buildings.  Due to the fact that most large format department stores are multi-level and have multiple egress points, the costs to reconfigure these buildings can be extraordinarily high.
GlobeSt.com: In other markets, we have seen big boxes converted into other uses. Do you think that we will see that in L.A., and if so, what uses will dominate?  

Burns: Entertainment users remain active in Los Angeles and are logical replacement tenants. Retailers like Bowlmor/AMF, Dave and Buster's and movie theaters continue to aggressively expand in LA and due to mall dynamics, availability of parking and strength of the existing consumer traffic to these locations make regional mall locations a natural fit for this retail segment.   I expect that the highest and best use for some of these buildings to be something other than retail.  Due to the ongoing housing shortage in LA, I expect that multifamily residential will be a likely alternative.  Converting to residential will come with challenges due to the nature of the operating agreements at most malls and their commercial zoning.  Most large scale repositioning efforts will involve long-term strategic development plans that will take time to realize and involve near term uncertainty at the center until plans have been fully approved and constructed.

LOS ANGELES—L.A. wasn't as impacted by major department closures last year as some other US markets. The density in Los Angeles helped to keep department stores here open, but that doesn't mean that there were no store closures. To find out how department store closures have affected the L.A. market and which stores have seen the most closures in this market, we sat down with Scott Burns, EVP and Los Angeles Retail Brokerage Lead at JLL.

GlobeSt.com: How has the Los Angeles market been affected by department store closures? 

Scott Burns: The impact thus far has not been significant, mainly because stores in Los Angeles are typically higher performing for most chains.  Performance and urban density has kept many of the large-scale department stores in our market off the early closure lists. . This will change with the closure of Nordstrom at the Westside Pavilion, Sears in Carson, JCP at the Village at Orange and a few others.

GlobeSt.com: Which stores have seen the most closures? 

Burns: Kohls has closed the most stores in our market, many of which remain vacant.  The challenge with these boxes has been that there are very few single tenant retailers looking for 70-80,000 square foot buildings, and in most cases these buildings are located in community or neighborhood shopping center environments.

GlobeSt.com: How will these closures impact the retail market, in terms of vacancy and rental rates? 

Burns: While the impact to date hasn't been realized,  we expect that that future closures will, in most cases, create opportunities, and in others, pose long term challenges.   By in large, department store buildings are located at the retail hub of the market and near other high volume retailers, which typically results in low vacancy rates and a lack of box opportunities.    These closures will allow certain retailers the direct opportunity to backfill portions of these stores and enter markets that they have been unable to in the past.  These closures will also allow landlords the opportunity to re-evaluate the highest and best uses for their assets.  As the evolution of the regional mall continues, many landlords have realized that malls are much more than a regional experience and that localized, daily needs offerings, such as grocery and fitness, can thrive.  I expect to see this trend continue.  I also expect to see ancillary uses such as creative office and multifamily to emerge as the highest and best uses for some buildings.

GlobeSt.com: Is there any concern about filling this space?

Burns: Yes and no.  Sophisticated owners of well-located urban department store buildings will likely have multiple options to pursue.  The concerns will be for the buildings that are located in the suburban communities, where demand and rents are lower and competition for large box space is higher.  In these cases, the challenge will not only be finding a sufficient number of tenants to occupy the buildings, but also to achieve the rent needed to justify the cost to demise and reposition these buildings.  Due to the fact that most large format department stores are multi-level and have multiple egress points, the costs to reconfigure these buildings can be extraordinarily high.
GlobeSt.com: In other markets, we have seen big boxes converted into other uses. Do you think that we will see that in L.A., and if so, what uses will dominate?  

Burns: Entertainment users remain active in Los Angeles and are logical replacement tenants. Retailers like Bowlmor/AMF, Dave and Buster's and movie theaters continue to aggressively expand in LA and due to mall dynamics, availability of parking and strength of the existing consumer traffic to these locations make regional mall locations a natural fit for this retail segment.   I expect that the highest and best use for some of these buildings to be something other than retail.  Due to the ongoing housing shortage in LA, I expect that multifamily residential will be a likely alternative.  Converting to residential will come with challenges due to the nature of the operating agreements at most malls and their commercial zoning.  Most large scale repositioning efforts will involve long-term strategic development plans that will take time to realize and involve near term uncertainty at the center until plans have been fully approved and constructed.