New Tricks for NNN Lease Mall Investor

NNN Lease Market News

Goodbye to Circuit Citys and Old Navys; Hello, Gun Ranges, Aquariums, Go-Carts

Sobered by store closings and the rise of online shopping, owners of U.S. shopping centers are filling space and drawing visitors by turning to unusual tenants like gun ranges and go-cart tracks.

Mall giant Simon Property Group Inc. opened an aquarium in July at its Grapevine Mills mall near Dallas. Real-estate brokerage Jones Lang LaSalle Inc. put a fencing academy in a former Old Navy store in Florida's Tallahassee Mall, and a community theater on the lower level of a former Boscov's store in Harrisburg,Pa.

Nontraditional tenants, in many cases, though, don't pay as high a rent as major chains would pay. What's more, nonretail tenants often don't pay percentage rents, a form of bonus rent that retailers pay from a small percentage of their sales when they exceed a certain threshold.

Even top performing mall companies—like Simon, which reported a 19% rise in earnings Tuesday—are looking at restaurants, entertainment and other nonretail uses as a hedge against the drain from online shopping. Glimcher Realty Trust purposefully filled 25% of its upscale Scottsdale Quarter mall near Phoenix with restaurants such as Stingray Sushi and services like Drybar, a salon that specializes in blow drying women's hair. "She can't go out to lunch and have a salad and a glass of wine with her girlfriends online," Glimcher Chairman and CEO Michael Glimcher said, referring to the mall industry's coveted female shoppers.

Struggling shopping centers, like the Tallahassee and Harrisburg malls, meanwhile, are signing nonretail tenants because no one else is lining up for the space. But adding a tenant with limited potential to bring shoppers to the rest of the center—like classrooms or a church—often isn't popular with existing tenants. The move can be seen as giving up on the center as a retail venue.

http://online.wsj.com/article/

Vacancy Rate at Malls Increased to 9.3%.

NNN Lease Market News

Vacancy Rate at Malls in the top U.S. Markets Increased to 9.3%.

The average vacancy rate at malls in the top 80 U.S. markets increased to 9.3% in the second quarter from 9.1% in the first, according to real-estate research company Reis Inc. Those vacancy figures are the highest Reis had recorded for malls since it started tracking malls in 2000.
Meanwhile, average lease rates at U.S. malls remained steady at $38.77 per square foot per year, unchanged from the first-quarter rate, according to Reis.
Clearly, retailers want to be in the best and strongest locations," said Michael Glimcher, chairman and chief executive of Glimcher Realty Trust, owner of 23 U.S. malls. "If you're in a big market, you better be one of the top malls [there]." Mr. Glimcher said he foresees his malls reaching an average of 95% occupancy later this year from 94.1% in the first quarter and 92.6% a year earlier. In the second quarter, Glimcher signed shoe seller DSW Inc. to replace bankrupt bookseller Borders Group Inc. at its Dayton Mall in Dayton, Ohio.
Reis calculates its averages for vacancy and lease rates by sampling 40% of the retail properties each quarter in the top 80 U.S. markets.
Corrections & Amplifications: Malls in the top 80 U.S. markets in the first quarter posted an average lease rate of $38.77 and strip-mall centers registered an average of $16.54. An earlier version of this article incorrectly reported the figures as $16.54 for malls and $38.77 for strip centers.

http://online.wsj.com/article/