By Garrick Brown, Vice President of Retail Research, Americas
I’ve been in New York City the last few days and just came from the new Westfield World Trade Center project. I say project because I hesitate to call it a mall… if anything, this would be a lifestyle center but one where I would anchor that food (and maybe an incredible two-story Apple store) are the anchors. In fact, today Westfield hosted a huge private luncheon for brokers, retailers and others involved in the development of this project at one of the many dining areas within the new Eataly at this project.
I don’t have actual square footage offhand but Costar puts it at 335,000 square feet… which frankly sounds really low. But the space has large swaths of it connecting to the Port Authority of New York’s WTC transit hub that have incorporated the design underneath the WTC site. That being said, the common area atrium is perhaps the most beautiful I have ever seen in a retail project. As you walk into the space coming from the transit center, it unfolds like a memorial of sorts. You cannot be at this site and not be struck at the immensity of the tragedy of what happened here fifteen years ago. This alone made the creation of a retail space here a very tricky proposition for all involved. As it stands now, I think Westfield may have pulled off something I would have thought near impossible. They created a retail space at this site that is beautiful and reverent while being functional. Is this project part mall/part memorial? Yes, as strange as it sounds that is exactly what Westfield WTC is. And it will stay that way so long as the immense and beautiful center atrium (lit naturally and delicately from above from sunlight streaming through cathedral-like spires of glass) stays that way. Fill that wide open space with a bunch of kiosks with a bunch of vendors trying to sell you license plate frames, cosmetic lines and remote control cars… well, then there will be a problem. But these guys are way too smart for that.
Of course, it may be a testament to how good a job they did in creating functional and reverent space here that I almost feel guilty for the first thought that came into my often petty little real estate brain… which was… “Good God, what are the CAM charges gonna be?” Yet, one of my brokers who did a deal here told me this afternoon that his food tenant did so well yesterday that they earned in one half day of business enough to pay the first rent’s month. So there you have it…
But let’s get back to what this is… This is a center where food is the anchor. There are plenty of great retailers here, don’t get me wrong. But Eataly and the food court bordering on food hall quality of dining options here is immense. And this all falls in with the biggest news of the week… Macy’s announcement last week of 100 more store closures.
If you read the Newsline regularly you know I have been talking about this for months. Department store retailers and apparel players that are publicly traded are under immense pressure from Wall Street to close stores. And those that do are rewarded. Macy’s stock had been selling at about $34 per share last Wednesday (8/10). After the closure announcement was made on Thursday (8/11) it shot up to nearly $40 per share. It has since peaked at nearly $41 yesterday though it is down slightly today. If you read my columns you also know that I agree that most of the big players out there do need to cut unit counts by anywhere from 20% to 30% while boosting their eCommerce revenues by a like level. But where I disagree with Wall Street is the issue of urgency. The issue for me is simple… if we are talking about leased space then we are talking about retail chains trying to close an awful lot of stores well before their leases expire.
Retailers in that position are going to pay an awful lot of money to get out of those leases. And those expenses for some chains could get into the tens of millions if we are talking about enough stores. At a time when sales are weak and most retailers are trying to pump as much money as they can into building their eCommerce infrastructure this could be disastrous. It could be lights out disastrous. But it could also mean stock prices stabilize or soar in the short-term. For some, it may prove to be in the very short-term.
This being said, I see this Macy’s deal as being a little different. They have not released a list of the 100 stores they are going to be closing in the next couple of months… but my sources there have told me that most of them are locations that they own. This difference between leased and owned space makes all the difference in the world. In fact, the only location we know for sure that they are going to close is the Macy’s Men’s Store on Union Square in San Francisco. There they will consolidate the Men’s Store in with their flagship location next door and sell the real estate. The real estate, by the way, will go for top dollar and the blueprint for what to do with it is already there in what Macy’s did with their Brooklyn flagship last year. That project is being redeveloped with Macy’s continuing to occupy the bottom floors but the top being redone as creative office space. This is exactly what will happen in San Francisco except someone else will be the tenant on the bottom floor(s) of some of the most highly coveted retail space in the Western United States. The upper floors will be redeveloped as office, residential or hospitality (I would totally bet on that last one, considering the current shortage in SF hotel rooms).
Regardless… more closure announcements are certainly on the way. Wall Street is probably going to reward nearly all of them… that being said, some (like Macy’s) will actually be good moves. Others will likely be the first signs of what may turn into extended, years-long death spirals. In the meantime, will you see some new retail projects? Sure, with food increasingly taking center stage. Can the market sustain them? If it is bright and shiny and new and cool—of course. It’s not the new stuff you have to worry about the market sustaining. It’s the old stuff.
This post is commentary from the latest weekly edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick serves as Vice President of Retail Research for the Americas. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.