There were 7,426 store closures announced this year in the United States. Photo / Getty Images
There were 7,426 store closures announced this year in the United States. Photo / Getty Images
Retailers vacated US shopping centres at the fastest pace in at least nine years in the second quarter as the relentless rise of online shopping and collapse of debt-laden chains begin to hit the commercial property market.
More than 7,400 store closures have been announced this year, with Sears, Victoria'sSecret and Charlotte Russe among a raft of household names to shut outlets in malls across the country.
Robust consumer spending has supported better-performing chains, while landlords have found alternative uses for some vacant shopping centre sites, from storage spaces to hotels. Record low construction of new retail space has also helped so-called net absorption in malls, a measure of the difference between space that becomes available and is occupied, to rise in 16 of the past 22 quarters.
However, in a sign the market could be starting to turn, net absorption dropped in the three months to the end of June by the most on property broker CBRE's records going back to 2010.
The red flag from the property market comes as investors worry anew about the outlook for some of the country's biggest bricks and mortar retailers.
Concerns over mall stalwart JC Penney's near-$4bn debt burden sent its shares down 17 per cent on Friday. The 117-year-old department store chain said it was taking external advice on how to strengthen its balance sheet but added it had not hired advisers to "prepare for an in-court restructuring or bankruptcy".
Within the past two weeks discount retailer Fred's has warned it plans to close 129 outlets while fashion chain Charming Charlie filed for Chapter 11 bankruptcy protection.
"We've been the busiest we've ever been in our history," said Scott Carpenter, head of retail liquidation at Great American Group.
Despite the wave of closures, overall vacancy rates in US retail remain low. Figures due to be published this week by CBRE show only 5.3 per cent of total space in malls was available for lease in the second quarter.
The 3.3m sq ft decline in net mall absorption equates to a tiny fraction — an estimated 0.4 per cent — of the total stock. Anthony Buono, CBRE's global president of retail, also cautioned against reading too much into one quarter.
Yet analysts said the aggregate totals masked turmoil at the bottom end of the US shopping centre market. While occupancy rates average about 97 per cent for highest performing "A++" grade malls, they stand at only about 67 per cent for the worst quality "D" grade centres, according to estimates from Green Street Advisors.
Sears, Victoria's Secret and Charlotte Russe among household names closing outlets. Photo / Getty Images
Out-of-favour properties risk being caught in a downward spiral, since lease terms allow some retailers to vacate early or require rents to be cut when anchor tenants leave.
Huxley Somerville, head of US commercial mortgage-backed securities at ratings agency Fitch, said the decline in malls' net absorption was a sign some landlords were struggling to find replacement tenants for abandoned units.
"Each time a store closes, and is not able to be replaced . . . the landlord becomes more squeezed in their ability to pay on debts," he added.
The 7,426 store closures announced this year, as tracked by Coresight, compare with little more than 3,000 openings. The closures are already about a quarter more than the 5,864 during all of last year.
Some retailers are in expansion mode, however. They include athleisure brand Lululemon, which this month opened a 20,000 sq ft site in Chicago that features a meditation area and yoga studio. "In the better properties, there is very strong demand for space," Mr Buono said.
