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Updated: June 29, 2020

Hartford area’s retail realty market faces major vacancy, rent-collection hurdles amid coronavirus fallout

HBJ FILE PHOTO Westfarms mall in Farmington.

Greater Hartford’s retail real estate market held steady in recent years despite a nationwide boom in online shopping, but experts say the local industry won’t be able to avoid suffering in the wake of the COVID-19 pandemic.

Area brokers estimate that Greater Hartford’s 10.8% retail vacancy rate at the end of Aug. 2019 could nearly double by year-end, as consumers and restaurant-goers become less willing to visit shopping centers during the pandemic and spend on discretionary items like clothing. A second wave of the virus later this year could also further discourage brick-and-mortar activity, they said.

HBJ Photo | Joe Cooper
Restaurants in West Hartford Center.

Landlords are also rejiggering lease agreements with tenants — many of which have refused to pay rent — that were temporarily closed during the first few months of the outbreak. Brokers say smaller suburban retailers in towns like Windsor, Newington or Wethersfield will be hit much harder than those located in larger high-end retail corridors like West Hartford, Glastonbury or Avon.

Still, brokers are optimistic that the region’s most successful retailers and restaurateurs will survive the pandemic while landlords work to stabilize their tenant base.

“We are in the middle, and hopefully coming to the end of the largest social experiment ever with people working from home and buying from home,” said Frank Amodio, a partner of Farmington broker Amodio & Co. Real Estate. “Retail before this was in a bit of a decline. That’s only gotten worse as far as vacancies.”

Meanwhile, local landlords, and many others across the country, are bracing for the continued decline of big-box retailers. Macy’s, J.C. Penney Co., Pier 1 Imports and others, which often anchor large shopping centers or malls, have closed several Connecticut stores in recent months, and are set to shutter hundreds more across the U.S.

Other national chains like Starbucks, Victoria’s Secret, GNC, Nordstrom, AT&T, 24 Hour Fitness and J. Crew are also closing hundreds of locations nationally.

By the end of this year as many as 25,000 retail stores are expected to permanently close, which would crush 2019’s record of 9,302 closures, according to retail research and advisory firm Coresight Research.

Retail’s downward trajectory comes as several Connecticut malls, including Meriden and Enfield Square, recently changed hands. Westfarms mall’s parent company, Taubman Centers, was in the process of being acquired by Simon Property Group, America’s largest mall operator, before the deal fell apart due to economic uncertainties created by COVID-19. The acquisition is now tied up in a messy court dispute.

It’s not yet clear what the future holds for the Meriden and Enfield malls, which were both bought in the last two years by Namdar Realty Group. The New York-based commercial real estate investment firm, which also oversees the SoNo Collection mall in Norwalk, did not respond to requests for comment on its long-term plans for the properties.

Photo | Westfarms
Westfarms mall in Farmington.

Westfarms occupancy strong, ownership unclear

Westfarms, a 1.3 million-square-foot mall straddling the Farmington-West Hartford border, reopened May 20 with reason for optimism.

After recently implementing new social distancing and safety rules for customers and employees, the upscale shopping center is entering July with 140 tenants and a roughly 95% occupancy rate, according to Amanda Sirica, a Westfarms spokesperson. National retail tenants include Nordstrom, Kate Spade, Macy’s, Apple and H&M, among others.

The mall also signed new leases prior to the pandemic with activewear-apparel company Fabletics and Maggie McFly’s, a restaurant and bar that’s still on pace to open in a 10,000-square-foot space with 150 employees, she said. It also currently offers a mix of 40-plus exclusive retailers.

“That draws the demand from the consumer and makes us unique to other retailers,” Sirica said, noting that sales have slowly ramped up since late May.

Far from the steps of Westfarms, a Michigan court will decide whether the Simon Property Group will be forced to acquire a majority stake in Taubman Centers and its real estate portfolio, which includes Westfarms and 25 other high-end indoor shopping centers nationwide.

Simon earlier this month terminated its February $3.6 billion merger agreement, citing Taubman’s failure to mitigate the impact of the COVID-19 pandemic on the business. Taubman said Simon’s termination is invalid and it plans to move forward with the deal.

Alexander Goldfarb, an analyst for Minneapolis investment bank Piper Sandler & Co., said the legal spat will be tied up in court for months as the deal could be renegotiated at a lower price due to the economic damage COVID-19 has caused retailers.

Goldfarb said the merger decision won’t have much of an impact on Westfarms’ tenants, although they’d likely prefer to have the case resolved quickly with Simon emerging as the new operator.

“Because from a capital perspective and deep pockets, Simon is it,” he said. “If you are Taubman as a stand-alone, the tenants are still fine, but what you don’t want is uncertainty.”

Goldfarb said mall operators are actually well-suited to salvage business amid the health crisis because they have quality air-circulation systems and could provide temperature checks, face masks and social distancing markers to improve consumer confidence.

He estimates that 70% of national mall tenants are financially stable, while 20% have some rent restructuring in the works. The remaining 10% of tenants will close for good.

Michael Gallon, a managing partner at Newington-based Reno Properties Group, said he agrees that larger retail properties like Westfarms are going to overcome COVID-19’s impact.

“Westfarms mall is going to be around and successful and work through something like COVID,” Gallon said. “I think street retail will have the biggest challenges.”

HBJ Photo | Joe Cooper
Retailers big and small and restaurants are both feeling the pain from the COVID-19 pandemic. Pictured: An overhead look at Meriden Mall in April.

Vacancies, lease restructuring

The downturn has forced tough negotiations between landlords and tenants, and some small businesses are trying to use a force majeure provision in their lease contracts to delay or even skip rent payments, brokers said.

But that still won’t stop some small- to medium-size retailers from permanently shuttering because they can’t afford an extended lease.

“I think landlords will see increased vacancies from smaller to medium local and regional tenants that will not be able to continue in business with their retail locations,” Gallon said.

Amodio said some landlords are using new revenue-sharing lease deals instead of typical flat monthly payments.

In the restaurant industry, for example, rent is historically about 8% of sales. That’s now closer to 20% of sales due to newly mandated 50% seating capacities, he said.

“The vacancies will continue, and much of the retail space will be deployed for other uses,” Amodio said.

Rental concessions, though, are difficult for landlords to shoulder because many Hartford tenants not based in malls are paying rents — in the $10 to $15 per-square-foot range — that leave property owners with thin margins, said Avner Krohn, one of the most active developers in downtown New Britain and other nearby towns.

“It’s very hard for any landlord to maintain a property, pay the most basic of debt service, and reduce rent,” Krohn said, adding that some vacancies will be absorbed by new opportunistic retailers.

Krohn, who owns Jasko Development LLC, said the health crisis has forced many shoppers ages 50 and older to adjust to online shopping, which could signal a major shift in consumer habits.

“I think the only way you see a rebound in 2021 is with a vaccine or the virus dies out to some extent,” he said. “Because any population that’s at risk is not going out right now, and rightfully so.”

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