Landlords and developers are eyeing the Toys ‘R’ Us store properties in Arizona after the retailer announced it would close or sell all of its U.S. stores.
The toy retailer filed for bankruptcy last year, and it will clear out 182 stores nationwide. In Arizona six out of the 18 stores will be emptied. What happens to these empty stores mainly depends on market demand, experts said.
“Toys “R” Us is located in regional locations and power centers. Those generally are the easiest to lease because almost everybody can go there,” said Dave Cheatham, the president of Velocity Retail Group, a full-service retail commercial real estate company in Phoenix.
The toy retailer joins other companies such as Sports Authority in emptying out their stores nationwide.
Velocity Retail Group was negotiating a contract for one of its retailers to obtain a lease at the Toys “R” Us store located near the Paradise Valley Mall. A furniture company bought up the property before Velocity Retail Group could close on a deal.
“They get snapped up pretty quickly,” Cheatham said.
Cheatham said these big box retail stores are prime real estate because of their location. The majority of the Toys “R” Us locations in Arizona that will be emptied out are in locations other retailers want.
“Toys ‘R’ Us did a really good job at real estate. Most of their sites are well located,” Cheatham said, “So they will lease pretty quickly.”
The CEO and founder of Simon CRE, a commercial real estate developer, Joshua Simon also agrees Toys “R” Us is leaving behind prime pieces of real estate.
“There is no question that we have an excess of retail space; however, we haven’t been building any,” he said.
With malls emptying out across America, the available retail spaces are worthy for companies that offer services. One trend Cheatham has been seeing is the move of “medtail” into these retail spaces. Medtail is retail for medical tenants, something that has been growing with the urgent care centers in the Valley.
Simon said companies in the service industry are doing well because they’re located in community centers. These companies focus on food, entertainment, fitness and discount stores.
“There has been what I call the squeeze on the middle: You’re either a high end like Nordstrom or a low-end cost provider like a Ross. You are kind of a treasure trove. People like to hunt for deals,” Simon said.
Online retailers such as Amazon have placed pressure on these brick-and-mortar stores to deal with the shift in consumer behavior.
But Americans are not all flocking to online retailers to shop. People still rely on brick-and-mortar stores to purchase their products, according to a report by Morning Consult, a market research company. The same report found that 71 percent of people still prefer shopping at a physical store compared to online, and 74 percent prefer shopping for shoes in person than online.
Although there are some companies still surviving the online revolution, Cheatham said not all them can afford the spaces they lease because of product change.
“Some of the stores like Best Buy used to have VHS tapes in it. They had a big area for it. They don’t need VHS tapes. … Things are changing. There is more showrooming where people can look in something and see what they want. They can order off the internet in a complementary way from Best Buy. If they don’t have a product they use the internet as a backroom,” he said.
Simon said there is a real estate “sweet spot” with square feet for big box retailers that is anywhere between 15,000 to 30,000 square feet.
“I think the bog boxes like Sports Authority had a more difficult time for the bigger stores like the 42,000 square foot stores,” he said.
The real estate Toys “R” Us is leaving behind will provide an open a door for other retailers wanting to move in because the space and location these stores have are the same other stores want.
“They have a lot of good real estate. Those pieces of real estate will easily be picked up by other retailers,” Simon said.
