Malls turn to new type of tenants

Retail vacancies are expected to rise this year.

ASSOCIATED PRESS

Community college classes in the old mall movie theater. A state motor vehicle office across from the Starbucks. Maybe a local library between the Victoria’s Secret and the Gap.

Mall and strip center owners are turning to untried and untraditional tenants to brighten dark storefronts as the sluggish economy sends more retailers to bankruptcy or forces others to scale back their expansion plans.

Retail vacancies nationwide hover around 10 percent, according to ReStore, the retail division of commercial real estate services firm NAI Global, and could reach 12 percent or more by the end of the year. Similarly, Property Portfolio Research expects vacancies to rise and the total amount of new space leased to drop 94 percent from 2007.

Some of the hardest-hit areas will be the same ones battling the worst declines in housing prices: Southern California, Florida, Las Vegas and Phoenix.

“What we do in these times, we look for nontraditional uses to fill spaces and to generate income and, more importantly, traffic to help existing retailers to produce more sales,” said John Bemis, head of Jones Lang LaSalle Inc.’s retail leasing team.

Bemis said it’s typical to turn to the public sector, such as colleges or city and state services, as tenants. The Department of Motor Vehicles is a great tenant for a mall or strip center, Bemis said, because people are constantly coming in and out of the government office.

In November, mall owner Pennsylvania Real Estate Investment Trust snagged New River Community College as a tenant for a former theater space in its New River Valley Mall in Christianburg, Va. The satellite location features seven classrooms, four computer labs, a science lab, two auditoriums, testing and conference rooms and office space.

Developers Diversified Realty Corp. is considering leasing to a local library for a year as the library renovates its own location. The real estate investment trust, which owns over 700 U.S. retail centers, also has received interest from politicians who want to set up temporary campaign offices until the election.

For stubbornly vacant spaces, some mall owners are transforming the storefronts into billboards, selling ad space until a tenant is found. Developers Diversified recently signed a contract with Boston-based WindowGain Inc.