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Local merchants help centers in tight economy, experts say

Shopping center landlords looking to fill space vacated by national retailers would be wise to think locally, according to a sampling of retail real estate brokers. “Everything old is new again,” said John Bemis, director of leasing and development for the retail group at Jones Lang LaSalle. “We’re looking more toward local and regional merchants. We are looking at alternative uses, such as colleges and universities that are opening satellite campuses, [or] municipal offices — making the mall a community center and [creating] the ability to perform multiple functions while you’re at the shopping center.”

The amount of occupied space in U.S. shopping centers declined by 8.7 million square feet during the first quarter, according to commercial real estate research firm Reis. The vacancy rate, meanwhile, was at its highest level since Reis began compiling the data in 1999. First-quarter rents paid by tenants fell 2.9 percent from a year ago and 1.8 percent from the fourth quarter of 2008, and landlords’ first-quarter asking rents slipped a record 0.6 percent from the previous quarter.

The economic downturn has allowed many smaller private companies to “access spaces they may not have been able to get into in the past, and that is a positive,” said Bernard Haddigan, managing director of Marcus & Millichap’s national retail group. “There are a lot of communities that want to have local vendors instead of just national chains.”

Beyond grocery and discount stores, pharmacies, warehouse clubs and quick-service restaurants, there are some relatively atypical tenant types thriving in this down economy too, among them liquor stores, pawn shops, auto-parts shops, and even gun sellers, Haddigan says.

“Right near our office in Atlanta, there was a CompUSA that went out in a large box, and a store called Total Wine, a middle-to-upper-end liquor store with a pretty broad focus, went in,” he said. “It seems like it is driving traffic to the center. As a landlord, you want quality tenants that are creating more traffic for your center. I think that is a respectable addition to the property. U.S. consumers have been expanding their interest into wine, and wine purveyors have done very well over the last number of years here. It would seem like there is some room for expansion for retailers in that sector.”

When the economy finally regains its footing, even consistently well-leased shopping centers may look drastically different than before, Bemis says. “If you looked at a shopping center 18 months ago in California, it was not markedly different than one in, say, Minnesota or Florida,” Bemis said. “This downturn is forcing developers to re-engage local talent and bring local flavor back into their shopping centers. I think that’s an important aspect of your center — that you reflect what your local market holds near and dear to their heart.”