What the End of Borders’ Story Means for Commercial Real Estate
The short answer is more trouble for commercial real estate (NYSE:IYR). Borders Group, operator of a chain of retail book stores nationwide, filed for bankruptcy in February and has recently decided to liquidate its stores, having been unable to find a buyer. Bloomberg reports that when Borders’ chain stores finally close up shop, they will leave a sizable dent in an already battered commercial real estate (NYSE:IYR) business. “[the] liquidation will increase available U.S. retail space by about 6.3 million square feet (585,000 square meters) as the industry struggles with near-record vacancy rates and stagnant rents. DJM Realty LLC plans to auction 259 Borders leases in two separate sales, probably in August and September…That’s on top of about 225 stores the book retailer began closing after its February bankruptcy.”
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Demand for storefront properties has swooned among retailers since the economic downturn, and continues to represent a brittle market given the surge in ecommerce and high unemployment figures. One realty group estimates that the borders sale will leave another 859 million sq. feet of vacancy in commercial properties. The company’s 399 stores will likely bump vacancy rates at malls and shopping centers, already near historic levels of 11% in the second quarter this year, even higher. Borders’ closure could also further depress an already downtrodden rent market, via Bloomberg, “Shopping center owners’ asking rents in the second quarter fell to $19.03 a square foot from $19.07 a year earlier, the firm said. Effective rents dropped to an average $16.54 from $16.58.”
Borders’ failure marks another sign of increasing difficulty traditional print retailers are facing given the rise of eReaders and digital media. Amazon’s (NASDAQ:AMZN) Kindle, Barnes and Nobles (NYSE:BKS) Nook, have usurped increasing percentages of market share of storefront retailers such as Borders. The rise of tablets through Apple’s (NASDAQ:AAPL) iPad and other mobile gadgets have made consumers less keen on buying traditional reading material as well.
While many fear a rise in vacancies and drop in wide property values emerging from Borders’ liquidation, experts say the market fresh storefronts and mall locations will be locked up quickly. John Benis, of Jones Lang LaSalle Inc., a Chicago real estate broker, adds, “Even though it’s a huge number of spaces being dumped on the market in bulk, given the quality of the locations I think they’ll lease up quite well.” Benis reports that Best Buy (NYSE:BBY), Dick’s Sporting Goods (NYSE:DKS), Books-A- Million Inc. are among the retailers likely to express interest in former Borders properties.