City loses big box, anchor tenants

By Mark Hansel

Tuesday, June 30, 2009 | 2:17 p.m.

The increased retail vacancy rate in the Las Vegas Valley during the last year has included an alarming rise in the loss of big box and anchor tenants. These businesses are crucial to the success of retail properties, because they are often the traffic generators that feed customers to other merchants.

The recession has been the primary cause of the increased vacancy rate, but other factors, such as changing shopping habits and a shift in the region’s population base and demographics, also are to blame.

Experts say the exodus of national retailers from the Las Vegas market, such as Circuit City, Linens ’n Things, Rite Aid and, most recently, Sportsman’s Warehouse, helped spur the increase in vacancies.

The reasons for the departures vary, but all are linked to economic problems.

“There are between 45 and 50 big-box vacancies that were formerly occupied by national tenants,” said Rob Moore, managing director of investment sales and leasing for Gatski Commercial Real Estate Services. “In early 2000 and 2001, a lot of the national retailers were in a major expansion mode, and we got more than our share of that. Now we are on the other side of it because of the recession.”

Gatski Commercial handles a portfolio of nearly 7 million square feet valleywide, about 30 percent of which is retail.

Moore said the stated retail vacancy rate — between 8 and 10 percent by most estimates — is actually on the low side. The projections are based on different formulas, Moore said, so spaces where a valid lease is in effect, but the tenant has moved out, might be listed as occupied.

Vons, for example, continued to pay rent on a grocery store in West Las Vegas for more than four years after it closed.

“The numbers might actually be significantly higher, maybe double,” Moore said.

There are some bright spots on the local landscape. Fresh & Easy Neighborhood Market, a subsidiary of the British grocery giant Tesco, has opened 25 stores since it entered Las Vegas in fall 2007.

Although the grocery chain has experienced the same struggles as most other merchants because of the recession, company officials say it is committed to its neighborhood market concept and is opening another store in Las Vegas in the next few weeks.

Fresh & Easy also seized an opportunity to acquire some locations that were a good fit for its business model, snatching up 10 sites formerly occupied by Rite Aid.

“The main thing for us in our site selection is finding a spot that fits for our expansion plans,” said Brendan Wonnacott, a spokesman for Fresh & Easy. “We can fit into a variety of locations, due to our size of about 10,000 square feet for the sales floor.”

Although a tenant of that size is not a huge anchor, grocery stores traditionally generate a lot of traffic and provide a stable presence in strip malls. The stores also occupy spaces that otherwise would have been difficult to fill.

Local experts say anchor spaces can take anywhere from six months to two years to fill, maybe longer in this economy. The absence of a traffic generator for an extended period might be a death knell for other merchants in those strip locations.

Although not every potential tenant has the flexibility of Fresh & Easy, Tami Lord, a vice president with Voit Commercial Brokerage, said it is essential for merchants and landlords to adapt to available opportunities.

“Landlords are certainly being more aggressive on their rent structures and the types of deals they are negotiating,” Lord said. “I think as a whole, they are being more receptive to a variety of retailers that perhaps, in the past, wouldn’t have been attractive to them at their centers.”

A classic example occurred at a recent International Council of Shopping Centers reception in Las Vegas.

Nick Hannon, a senior vice president at Territory Inc., was one of the speakers.

Another speaker made the comment that Territory could probably get a Savers into one of its locations at any time but wasn’t interested because the store would not be a good fit.

Territory specializes in bringing nationally recognized anchor tenants to premium locations, and Savers is a thrift retailer.

“Don’t be so sure about that,” Hannon said somewhat jokingly.

Although it’s unlikely that a Neiman Marcus will be next to a Goodwill store anytime soon, it’s clear that the recession has caused some changes in traditional thinking among landlords and consumers.

The failure of some big-box retailers to recognize the shift in where and how people shop, Moore said, has caused some high-profile companies to struggle or go out of business.

“The average buyer is far more price sensitive right now than at almost any other time in history,” Moore said. They are also looking for convenience.”

It’s the reason companies such as Wal-Mart continue to do well, and it’s also why Internet shopping is increasingly popular.

Internet companies have been refining their process, delivery and distribution methods. As people have

gained confidence in online shopping, which better fits busy lifestyles, the scale has tipped in favor of this method.

Another shift that went almost unnoticed for a time was the change in the population demographic.

As more upscale properties were developed outside of the city’s core, and the population demographic began to shift, fewer target customers of some stores, such as Dillard’s at The Boulevard mall, were in the area. And although such closures are painful, Lord says, they are also necessary.

“It’s an opportunity for retailers to reposition their market strategy and for new retailers to enter the market. It’s also an opportunity for just an overall freshening of the real estate.”