RPAI has filled vacant stores across its 104 properties with more-profitable tenants, Shane Garrison, the firm’s president and COO, told analysts on an earnings call. The open-air shopping center REIT’s rent grew by 10.8 percent year over year during the third quarter. Trader Joe’s, for one, backfilled a former Pier 1 store “at a very compelling spread” at the Shoppes at Union Hill, in Denville, N.J., and Lululemon Athletica replaced a former J.Crew at Main Street Promenade, in Naperville, Ill., “at a positive double-digit spread,” according to Garrison.

Brixmor Property Group, which owns about 400 open-air centers, says such tenants as Pet Supplies Plus and Five Below have already filled about 60 percent of its vacant Dressbarn stores, the majority of which closed in late 2019. Five Below reached the 900-store mark in 2019 and is aiming for 2,500. The REIT posted third-quarter net operating income of 4.4 percent.

Retailer expansions

Health care tenants continue to eat up retail space, driven by the urgent-care industry’s growth from 6,400 clinics at year-end 2014 to 9,300 by mid-2019, according to the Urgent Care Association. The Dana-Farber Cancer Institute is opening a 34,000-square-foot oncology-hematology outpatient facility this spring, for example, at Patriot Place, an open-air center next to the New England Patriots’ Gillette Stadium, in Foxborough, Mass.

Pop-ups have evolved from one-offs to perennial space-fillers. About a third of pop-up deals lead to longer-term commitments, according to Cushman & Wakefield’s December 2019 Pop-Up-a-Palooza! report. “If you want a quick idea who some of the top tenants of tomorrow will be, look at pop-up space today,” noted Garrick Brown, Cushman & Wakefield’s vice president of retail intelligence for the Americas, who wrote that report.

Bonobos, Birchbox, Fabletics, Happy Returns, Peloton, Untuckit, Warby Parker and others have rolled out multiple pop-ups over the past few years, says Frederick Meno, president and CEO of asset services at the Fort Worth, Texas–based Woodmont Co. Citing ICSC’s landmark 2018 study, The Halo Effect: How Bricks Impact Clicks, Meno says e-commerce brands’ website traffic increases when they open physical stores, but declines when they close them. “This is a compelling justification for online brands to grow their physical presence,” he said.

New York City–based co-working company Industrious, which teams up with such retail landlords as Macerich, ShopCore Properties and Taubman Centers to create flexible working space, will be rolling out about 40 sites this year, according to Justin Stewart, co-founder and president of Industrious. Last year the company converted a former Barneys at Scottsdale (Ariz.) Fashion Square next to a flagship Apple store. Shopping centers’ central locations, restaurants, stores and service businesses make the properties ideal for such tenants, Stewart says. “There are only so many amenities in office buildings,” he said. Typically, landlords enter into revenue-sharing agreements with Industrious, rather than conventional term leases. Meanwhile, WeWork, which laid off nearly 20 percent of its workforce in November, has struggled to fill space in some of its massive sites, which are bound under long-term leases, Stewart notes.

Growing wellness chains like Massage Envy and Orangetheory Fitness offer internet-proof businesses and require less parking and finish-out than large fitness chains. They also tend to attract smoothie and vitamin shops and similar health-related tenants, according to developers and leasing agents.

Such larger-scale workout chains as Equinox Fitness, Gold’s Gym, LA Fitness, LifeTime Fitness and 24 Hour Fitness are also filling significant open-air space, notes Meno. And entertainment tenants like Altitude Trampoline Park, Dave & Buster’s, Lego, Round One and Sky Zone are filling up big portions of their own. Expanding apparel retailers include Citi Trends, Guess, Levi’s, Lululemon Athletica, Old Navy, Sephora and Skechers. Old Navy alone has plans to nearly double to about 2,000 stores, says Meno. “Even Charlotte Russe is in expansion mode, having been bought out of bankruptcy,” he said.

Barnes & Noble, too, is showing up on site plans, albeit in scaled-down formats, according to Nick A. Egelanian, president of Annapolis, Md.–based SiteWorks Retail Real Estate Services. Among the prototypes are the chain’s smallest yet — an 8,300-square-foot store in the Fairfax, Va., Mosaic District — and a 14,000-square-foot store that took over a former Bath & Body Works at the Village of Rochester Hills, near Detroit.

Hobby Lobby is filling large power center vacancies aggressively, observes Egelanian. Among these is a 59,000-square-foot former Toys R Us and Babies R Us space at Atlanta’s Akers Mill Square, where Hobby Lobby opened last spring.

TJX set out to open a net 230 stores globally in fiscal 2020 (ended Feb. 1). In the U.S. the company was anticipating the rollout of roughly 60 stores across its Marmaxx division (T.J.Maxx and Marshalls) over that same period, plus some 65 HomeGoods stores and about 15 HomeSense units.

Power centers are parceling off long-dormant pad sites to fast-casual restaurants, phone stores and medical tenants, Egelanian says.

Target announced a $7 billion investment plan for stores in 2017 and has since opened its 100th small-format shop. These measure about 40,000 square feet (roughly one-third of Target’s superstore format), though some are as small as the 12,800-square-foot store in Chicago’s Wicker Park neighborhood. Target’s small stores, concentrated mostly in urban neighborhoods and college campuses, tend to be twice as productive on a per-square-foot basis as the large-format ones, says the retailer, which has plans for about 30 additional small units this year.

Several furniture tenants have fused online with in-store experiences, says Ivy Z. Greaner, COO of InvenTrust Properties Corp. “They’re finding that building brick-and-mortar stores lifts sales across the board,” she said. Industry leader Ashley HomeStore is one, having opened its 1,000th store worldwide last October.

Quick-service and dine-in restaurants “are still very active as well, especially ethnic offerings, healthy food options and juice bars,” Greaner said. Shake Shack is planning for roughly 40 corporate-owned shops and as many as 25 franchised ones this year. 

Dollar General has the most stores of any U.S. retail chain, at some 16,000, and the company says it will fill about 9 million square feet over the next year or so — about 1,000 stores measuring roughly 9,000 square feet each.

The beauty category is also embracing open-air sites. Ulta Beauty says it is seeking 10,000-square-foot locations at power and regional centers, like its store in South Port Shopping Center, in Shirley, N.Y. Lane Bryant and Mattress Firm previously occupied that space. Sephora is exiting enclosed malls in favor of open-air centers in many cases, says Egelanian.

Fastest-growing restaurant chains in the U.S. in 2019

1. MOD Pizza
2. First Watch
3. Shake Shack
4. Lazy Dog Restaurant & Bar
5. The Habit Burger Grill
6. Raising Cane’s Chicken Fingers
7. True Food Kitchen
8. Tropical Smoothie Cafe
9. Jersey Mike’s Subs
10. Blaze Pizza

Source: JLL

In the grocery realm, there is still growth among limited-assortment, hard discounters, according to Joseph McKeska, president of Oak Brook, Ill.–based Elkhorn Real Estate Partners. Aldi has plans to beef up its U.S. store count from about 2,000 currently to 2,500 by year-end 2022. The chain will take existing in-line spaces and also pad sites and other new-build space. Competitor Lidl, for its part, is backfilling vacant grocery spaces and intends to open 25 stores this year. The company will buy some of the stores from UNFI-Supervalu, McKeska says.

Big grocery names Kroger and Walmart are building fewer stores than in past years, choosing instead to refine their click-and-collect systems, among other efficiency efforts, notes McKeska.

Among the specialty grocery chains in store-opening mode is Sprouts, which has announced plans to roll out roughly 20 stores this year, according to press reports. Trader Joe’s, which has opened 10 stores since last October, and Natural Grocers by Vitamin Cottage, which has a new store going now in Klamath Falls, Ore. (its 14th in that state), are busy with openings of their own. As for the traditional grocers, some of them are exploring new concepts. Among these is Publix, with its GreenWise Market, designed to compete with natural and organic-food retailers, says Greaner. Many of these grocery chains are also adding in-store bars and seating areas and building on adjacent fuel stations, she says.

Still other grocery spaces are getting backfilled with unconventional uses. Case in point: A 42,000-square-foot former Dominick’s grocery store in Lincolnwood, Ill., has become a Walmart automated pickup center, with the inside of the store inaccessible to the public. Other grocery chains are pondering similar pickup center strategies, says McKeska.

Tenant mixes in 2020 differ from anything consumers have seen since the dawn of the American downtown. According to an ICSC report titled Modernizing the Tenant Mix: Filling Vacant Retail Space with Non-Retail Tenants, released in November, fitness centers and nontraditional users (educational, medical, co-working and multipurpose space) occupied roughly twice as much square footage in 2019 as in 2009. Third-quarter net operating income at Kimco Realty grew by 2.2 percent year over year on the strength of demand from health, fitness, medical and service businesses and off-price retailers, CEO Conor C. Flynn told analysts.

General retail and apparel accounted for 36 percent of the new leases in 2007, according to ICSC, but only 27 percent in 2018 and also in 2019.