Lauren Leach: What Will Happen to All of the Vacant Sears/Kmart Boxes? – National Real Estate Investor
Lauren Leach was featured in National Real Estate Investor’s article titled “What Will Happen to All of the Vacant Sears/Kmart Boxes?.”
“The impact of the vacant Sears and Kmart boxes is going to be tremendous on the market because the majority are old and functionally obsolete,” says Lauren Leach, director of real estate advisory services at Birmingham, Mich.-based consulting and advisory firm Conway MacKenzie. “They’re over 100,000 sq. ft. to 200,000 sq. ft. in some cases. The Sears stores are often two-story buildings, so retrofitting is going to be really difficult—not only because they’re old and functionally obsolete, but because there are very few concepts that are big enough to backfill them.”
“Landlords will consider demising spaces for multiple users, but that’s a really expensive endeavor,” Leach says. “A lot of it’s going to depend on whether the location is freestanding or contiguous and part of an overall development. That’s going to be a major differentiating factor for landlords.”
These owners are “thrilled to have these boxes back,” Leach says. She notes most Sears’ leases are so old that the rates are artificially low; they’re well below market in terms of 2019 standards.
“Getting the space back allows landlords the opportunity to secure new users at market rates, and the new uses will undoubtedly be more exciting than a Sears or Kmart was and bring more traffic to the center,” Leach adds.
“It’s a smart move on Amazon’s part and it’s very calculated because they can come in with leverage,” Leach says. “If you’re a landlord and you don’t want to pay to demise or demo and build a new building, you have a bird in the hand when Amazon comes to you and says, ‘We’ll take your space as is. Just give us a bunch of money for TIs or landlord’s work.’ In many cases, that’s easier for a landlord.”
“Many landlords will choose to demolish the boxes rather than reuse them, especially if they’re freestanding,” Leach says. “Given the age and size of the boxes, it’s just easier, and in many cases just as cost-effective, to start from scratch. Doing so would really allow other asset classes like office and hotels to build on that dirt.”
“That’s really the trend for all retail real estate now,” Leach says. “Everything you’re hearing about and reading about is finding ways to bring customers to the mall for an experience rather than just to shop.” Now, the malls have to have a restaurant, entertainment uses and some type of technology-related experience to get people to come and stay rather than sit at home and shop online.
“Landlords that have a Sears are going to be challenged to find those entertainment uses to backfill what Sears once occupied,” Leach adds.