The balance of power remains tilted in favor of retail landlords rather than tenants, according to Standard & Poor's (S&P) Ratings Services, New York.
And traditional oversupply drivers such as speculative development and easy financing will not deliver significant new retail capacity in the near future, the ratings firm said in a special report, The Environment for U.S. Retailers and REIT Landlords Keeps Evolving, but the Mall Is Not Dead.
"Most real estate investment trusts [REITs] are in a 'bring-it-on' mood when faced with the prospect of taking back space from tenants in situations such as a merger or shrinking of their physical store footprint," S&P said in its report.
Delivery of new malls remains extremely muted, so retailers will have to pay more for space--which will lead to rent growth for mall owners, S&P said. "Redevelopment and expansion activity is much more robust than new, ground-up development as empty stores are more economical than new builds," the report noted.
S&P said mall operators' ability to "density" by creating space within their existing footprint remains an important sector trend that could accelerate over the next few years. "The biggest potential source of 'new' space is taking back and dividing space from shrinking anchor tenants such as Sears or J.C. Penney," the report said. "For strip-center operators, the consolidation in the office space offers...