RETAIL

Area retail landscape starts to shift

Vacancy rates remain low but new picture emerges

7/16/2017

Construction workers labor on the site of a future Taco Bell on Monroe Street at the retail strip anchored by Hobby Lobby.

THE BLADE/KURT STEISS
Buy This Image

By several measures, retailing in the Toledo area would appear to be thriving.

Store lease rates continue to go up and the vacancy rate for for shopping centers has been declining.

What’s more, although the amount of space under construction has fallen over the last six months, that which is being developed, about 34,000 square feet, is preleased.

But the numbers can be deceiving.

Sweeping changes to so-called bricks-and-mortar retail real estate nationwide is prompting store closures, the contraction of several chains, and retail bankruptcies, and it has made its impact in the last six months in metro Toledo. 

Experts agree that more changes are coming.

What seems to be coming, at least locally, is more restaurants and service providers, and fewer traditional merchandise stores, experts say.

“The scenarios have definitely got people talking and thinking and wondering where we go from here. ... To date, it isn’t showing up terribly in the numbers, but it’s clearly starting to and is going to keep growing,” said Harlan Reichle, managing partner of the Toledo commercial real estate firm Reichle Klein Group.

The retail vacancy rate midyear in metro Toledo has climbed to 12.1 percent from 10.8 percent at the end of 2016, even as the retail lease rate has risen to $8.28 per square foot per year from a previous $7.90, according to the midyear report by Reichle Klein. The numbers include the high-profile closure of the two local Andersons general stores. Although the report mentions the planned closing of Toledo’s last full-line Sears store, the closing — which has not occurred — is not in the numbers.

The report does not include the recently announced impending closure of a Kmart store on Alexis Road or a Kroger store on Byrne Road. It also does not include any activity involving construction or demolition of area hotels.

In the report, Mr. Reichle notes that it is impossible to look at the numbers and conclude that retail in the area is doing poorly. Demand for space has rebounded since the 2009 recession and many new space users have entered the market. But The Andersons, Sears, and Kmart decisions gave local experts some pause.

“There’s still some well-performing areas, but there’s also some shakeout happening,” Mr. Reichle said.

Sam Zyndorf, a commercial real estate agent with Signature Associates in Toledo, said retail is in the midst of a large evolution, as shoppers are increasing buying online from Amazon.com, Walmart.com, and other sites instead of in stores. What’s left for brick and mortar, he said, is mainly services and food. One example: a Taco Bell restaurant is under development on a key street-front site in the retail center anchored by Hobby Lobby on Monroe Street.

Big box stores that once dominated retailing are the biggest victims, Mr. Zyndorf said.

“Sears closing shouldn’t have been a surprise to anyone. My guess is in three years there won’t be a Sears or a Kmart anywhere,” he said. “The world is changing, and they’ll be reinvented. It’s sort of a retail nuclear holocaust taking place. It’s not bad; it’s just going to be different.”

There is a growing disappearance of retailers that sell products in shopping centers, Mr. Zyndorf said. One shopping-center owner told him the only calls he gets from potential tenants are from cell-phone operators and restaurants.

“Look around — they’re not retail strip centers anymore, they’re food-service centers,” he said.

Developer Ken Hicks, Jr., of Diverse Development of Toledo is building two small strip centers locally, one on Conant Street in Maumee and the other on West Central Avenue in Sylvania Township.

In both, the shops are all rented even before the buildings are built. Three out of four tenants in Maumee are restaurants and three of the five in Sylvania Township are restaurants, he said.

Demand is hot, he explained, for spaces of 1,500 to 3,000 square feet. “I wish I could have built more in Maumee,” Mr. Hicks said.

Examples include a Tony Packo’s 2,800-square foot restaurant under construction on Secor Road in the Westgate area, repurposing a closed Del Taco restaurant, and a new House of Meats store being built at 438 Illinois St. in Maumee, replacing its store-in-a-store it had in the nearby Andersons store, now closed.

Unlike others, Mr. Hicks said he doesn’t see that big boxes, as a whole industry, is dying. 

“We do see some [big] boxes closing, but sometimes that is good because we can reposition them” into a number of smaller spaces, Mr. Hicks said.

And one local exception to the big-box decline is the Appliance Center, a locally owned business with two stores in Maumee. It is about to open a 40,000-square-foot store on Monroe Street in Sylvania, selling appliances, furniture, and other home items.

But real estate investment trust Devonshire REIT II, based in Whitehouse, is convinced an upheaval is taking place. It invests primarily in neighborhood shopping centers and sees more trouble ahead for some traditional retailers.

“The big boxes are something that we’ve really tried to stay away from. Sears, Macy’s, J.C. Penney, Kmart — they’re either closing all their stores or some of those stores,” said Doug Dymarkowski, an officer of Devonshire REIT II, “and we made the conscious decision not to be at the mercy of those big-box stores.”

Still, Mr. Reichle said, leases in some local retail corridors, such as the Westgate area, are commanding “outrageously high” rents in the $30 per square foot per year range — nearly three times the average rent for the overall Toledo area.

The Reichle Klein report shows average asking rent in Rossford and Perrysburg and in Lambertville and Temperance is significantly higher than many of the other submarkets in the Toledo area.

And some retail niches, such as fitness and entertainment, continue to thrive. In November, a 34,000-square-foot Dave & Buster’s entertainment center opened on a separate pad on the Franklin Park Mall site.

“Monroe Street, on [U.S.] 20 in Perrysburg, and Airport Highway near Spring Meadows, they’re all doing well,” Mr. Reichle said. “But in the secondary and tertiary sites, it falls off dramatically in terms of demand and rates. And in some of those places it almost doesn’t matter what you ask, you can’t get any activity.”

Mr. Zyndorf said the Sears site in Westgate and The Andersons site on Talmadge Road most likely will be torn down and redeveloped. 

The Andersons site on Illinois Avenue in Maumee most likely will be repurposed into warehouse or light industrial space, he said.

The Kmart site on Alexis may sit idle for a while, he said.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.