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FORT WAYNE – Stanley Phillips has the teensiest of reasons to be optimistic about the local economy.
In the past 30 days, the principal and executive vice president of Fort Wayne-based NAI Harding Dahm has seen an uptick in the number of companies inquiring about retail space owned by his firm’s clients.
Phillips doesn’t want anyone to get carried away. He cautioned that interest has “ever so slightly” increased compared to previous months. But it’s enough to make him think the economy could be on the upswing by the end of the year.
Retailers looking to expand in the Fort Wayne market – or enter it for the first time – have myriad rental options. They can choose from the seven consecutive empty spots in Georgetown North shopping center on the city’s far east side, the three vacant store fronts in Covington Plaza on the city’s far west side and countless spaces in between.
Spaces are so plentiful because many retailers have declared bankruptcy and closed, victims of the recession that began in December 2007. Other retailers are barely holding on, trying to keep their doors open until consumer spending rebounds.
Consumer spending represents about two-thirds of all U.S. economic activity. When shoppers regain the confidence to splurge again, they will create demand for new cars, clothes and coffee makers. In turn, manufacturers will fill orders by hiring – putting unemployed people back to work.
The first signs the local economy is rebounding will show up on the register tapes of local retail stores.
A mid-June tour of more than 20 local shopping centers and malls revealed about 100 vacancies of various sizes. Research completed last week by The Zacher Co. shows a 16.4 percent local retail vacancy rate, a 14 percent increase compared to last year.
The national shopping center occupancy rate fell by 8.2 million square feet for a total 9.5 percent vacancy rate in the first quarter, according to Reis Inc., a New York-based independent commercial real estate market information firm. The three-month loss was almost as much as the total lost last year: 8.65 million square feet, according to Victor Calanog, research director.
Reis also gathers information for 76 metropolitan markets, but the list doesn’t include Fort Wayne.
The national mall vacancy rate, reported separately, was 7.9 percent in the first quarter, the highest level since Reis began tracking the statistic in early 2000.
But appearances can be deceiving. An empty space doesn’t necessarily mean the landlord isn’t collecting rent. And an occupied space doesn’t always mean the landlord is receiving the full lease payment.
Phillips also has seen retailers forced by leasing terms to keep a local store open unless it declared bankruptcy and closed all its stores. In other cases, a retailer has been forced to occupy more square feet than it wanted or needed, he said.
Georgetown Square, Northwood Plaza and Pine Valley shopping centers are among the centers NAI Harding Dahm leases.
Phillips, who has been with the firm since 1977, recalls the economic downturn of the early 1980s. Comparing then and now is a little like comparing pears and pineapples. Then, the slowdown was much more gradual and fueled by sky-high interest rates, he said. This time, the economy “slowed down dramatically” in a matter of three or four months, and interest rates are affordable but qualifying for a loan isn’t easy, he said.
As a result of his three decades in the industry, Phillips has developed a survival strategy he shares with prospective tenants. He tells them to create a reserve to cover unexpected expenses. Retail stores are affected by the economy, consumer confidence and various events they can’t control.
Shopping centers owe much of their success to location and activity in those parts of town. Over time, that can change as housing developments are built and employers pop up or leave. Others benefit from proximity to neighboring retail and entertainment meccas.
Northcrest shopping center is just west of Memorial Coliseum and east of Glenbrook Square, the area’s largest mall. Northcrest is 100 percent occupied this month.
Other area shopping centers – even those close to Northcrest – aren’t so lucky.
Circuit City, World Market, Linens ’n Things, Steve & Barry’s and S&K Men’s Store were all Glenbrook neighbors before closing in the past year. The stores were part of national chains with serious financial problems, some culminating in bankruptcy liquidation.
Steve Zacher, president of The Zacher Co., said the closures reflect a long-term, local trend. Coldwater Crossing and Kmart Plaza south are among the shopping centers Zacher Co. leases.
“The whole Glenbrook region is not the retail magnet – not the retail draw – it used to be,” the developer said.
Over the past 20 years, new Wal-Mart and Meijer stores have drawn shoppers to other parts of town, Zacher said. So have Chapel Ridge, Jefferson Pointe and Southtown Centre, he added.
Despite additional competition, Glenbrook continues to draw an estimated 15 million shoppers each year, according to its Web site.
JoAnn Plaza, near the corner of Coldwater Road and Coliseum Boulevard, had several empty storefronts earlier this month, including a space once leased by Shoe Carnival. The national shoe chain last year moved the store to Northcrest, saying that shopping center’s tenant mix would bring “synergy” to the shoe store’s sales. Neighboring tenants now include Kohl’s, Old Navy and T.J. Maxx.
The loss of a busy retailer like Shoe Carnival can mean the loss of considerable foot traffic at a shopping center. Every empty store represents one more space that isn’t attracting shoppers.
BitterSweet Gifts, for example, is flanked on both sides by empty space. The locally owned retail store hasn’t seen a drop in customer traffic since Wells Fargo closed its loan office next door. The other space has been empty since before the gift store moved in two years ago. But that doesn’t mean co-owners Nathan Taves and Don Jennings don’t want two new neighbors.
“It never looks good to have empties,” Jennings said.
The gift shop is a destination for some loyal customers, but other shoppers wander in after visiting Baan Thai, Cookie Cottage, GlassLink and JoAnn Stores. Another nearby store has become an unexpected draw for BitterSweet Gifts.
“I’m amazed,” Jennings said. “Every week we have someone come in who was down at Verizon and decides to come here.”
Taves said it’s difficult to gauge what effect next-door vacancies have on the store’s foot traffic. But the partners are pleased the holes aren’t gaping.
“They’re really small spaces,” Jennings said. “If there was 10,000 square feet (empty) on both sides, it would have an effect.”
Tamara Cummins doesn’t like seeing lots of vacant stores – in theory.
“I almost think I’d go out of my way to go to a full shopping center,” she said.
But the Fort Wayne woman, who recently bought a house, regularly shops at a shopping center that includes numerous empty spaces: Orchard Crossing. The shopping center is so new that many smaller spaces have never been occupied. Cummins likes to pick up home décor items at Target and Gordmans.
When Colleen Darnell sees a vacant retail space, she remembers how crummy the economy is and feels compassion for the store owners who had to close shop.
But then the Auburn woman gets a little excited, especially when the opening is in Glenbrook Square.
“You wonder what’s coming in here next,” she said.
Glenbrook, with its 1.2 million square feet of leasable space, is the granddaddy of local shopping centers.
A mid-month stroll through the mall found more than a dozen empty spaces but many dozens more occupied. Brian Cote, the mall’s general manager, said last week it’s more than 90 percent occupied.
Retailers that have pulled out of the mall include national chains Wilsons Leather, B. Moss Clothing, Demo and Club Libby Lu. All were national chains reporting financial problems.
Jefferson Pointe, the city’s outdoor lifestyle mall, had more than a dozen empty stores of its own. Departed tenants include The Gap, Blondie’s Cookies and Krispy Kreme.
Retailers can potentially parlay higher vacancy rates into bargain lease rates.
“The rental rates have become very competitive,” Phillips said. “There are some excellent deals being offered by landlords to induce tenants” to sign contracts.
The national average shopping center asking rent was $19.41 per square foot, a decrease of 12 cents compared with the end of 2008, according to the Reis study.
Phillips said local rates vary greatly, depending on the location and deal struck between the retailer and shopping center owner. But he offered some rental ranges.
New space that’s never been occupied leases locally for $15 to $20 per square foot, he said. Previously occupied spaces are going for $11 to $14 per square foot. Those rates both apply to smaller retail spaces. Stand-alone space is leasing for $9 to $11 per square foot, Phillips said.
Landlords are also luring tenants by throwing in moving costs, free rent and generous allowances to let them customize a space to suit their needs, he said.
But landlords aren’t trying to fill every empty space. Some vacancies are strategic because they make room for larger tenants to move in or expand existing stores.
At least two local shopping centers are purposely moving out smaller tenants to prepare for grocery expansions. Kroger Co. has announced plans to expand two stores that will begin offering general merchandise in addition to groceries. The Cincinnati-based company will expand Kroger in Dupont Village and Scott’s Food & Pharmacy in Village at Coventry to about 125,000 square feet each as part of its marketplace concept.
When the expanded stores reopen, their counterparts across the street will close, leaving large vacancies in those shopping centers. Kroger plans to shutter the Scott’s store in Dupont Crossing and the Kroger store across U.S. 24 from Village at Coventry.
Kroger acquired Scott’s 18 northeast Indiana stores in 2007. Kroger closed five stores after the deal closed – one Kroger and four Scott’s locations. Industry watchers have predicted that more consolidation was inevitable, especially where Kroger ended up owning stores across the street from each other.
Although the recession isn’t forcing those closings, the end result will be more retail vacancies in the local market.
Zacher hasn’t fielded more calls from potential tenants – the type Phillips mentioned – but he still has reason to be hopeful.
Windows, Doors & More recently bought the former Ethan Allen furniture store on Washington Center Road. The 21,000-square-foot building will house the local company’s combined retail and warehouse operations, co-owner Kevin Hunter said last week.
The move will more than double the local company’s space, but it also means the retail store in Northcrest and the warehouse on Clinton Street will become vacant.
Zacher also has heard someone leased half of the former Kittle’s Home Furnishings building across from Northcrest.
“There are signs,” he said, “that some of this vacancy is being absorbed.”
