Lease Acquisitions Fueled New Store Growth For Retailers in 2023
But Won't Likely Provide The Same Boost In 2024
More than 100 new retail stores that opened in 2023 were not the product of standard negotiations between tenants and landlords.
But instead resulted from the the purchase of leases by retailers during the bankruptcies of Party City, Tuesday Morning and Bed Bath & Beyond.
Burlington Stores, Michaels and Five Below were among the retailers that were especially active in purchasing leases as a means to add new stores:
Burlington acquired 64 leases in the Bed Bath & Beyond bankruptcy; new stores at these leased sites accounted for ~40% of its net new store openings in 2023;
Michaels acquired at least 20 leases in the aggregate, including some from each of the lease auctions held during the Party City, Tuesday Morning, and Bed Bath & Beyond bankruptcies;
Five Below purchased 23 leases which helped the Company top its target of 200 new stores in 2023.
Other retailers that acquired multiple leases in 2023 during bankruptcy lease auctions included ALDI, Barnes & Noble, Dollar General, Ollie’s Bargain Outlet, Haverty Furniture and PGA Tour Superstore.
For companies seeking to add new stores, these lease acquisitions were a boon.
Most leases were at (or below) market rent, the sizes and location of the suites matched their real estate needs and the leases were often available for space in hard-to-enter or supply constrained submarkets.
The acquisition of leases was not an inexpensive exercise, however.
Retailers spent both to acquire the leases in the bankruptcy auctions and pay "dark rent” while they renovated the spaces for their use.
For instance, Burlington paid approximately $12 million for the rights to acquire the 64 Bed Bath & Beyond leases.
It then paid $18 million in rent on those leases in 2023 prior to opening stores at the leased sites. Additionally, Burlington had to fund the buildout and renovation of these spaces without any contributions from Landlords.
Burlington opened new stores at roughly half of the leased sites that it acquired in 2023.
It plans to open stores at the remaining 32 leased sites in the first half of 2024 (after paying approximately $9 million more in dark rent prior to opening these stores).
Despite the costs, lease acquisitions provided Burlington, Michaels, Five Below and others with a critical pathway to bolster their new store pipeline in an otherwise tight market for Big Box retail space.
But the same situation is not likely to occur in 2024.
There have been a few retailer bankruptcies since the beginning of the year, but none that has resulted in hundreds of immediate Big Box store closings - or the opportunity for lease acquisitions.
JOANN Inc filed for Chapter 11 bankruptcy last week - but it plans to re-emerge from bankruptcy as a private company in as little as a month.
And with all of its 829 store leases in place.
Some Rite Aid leases could be in play to be acquired if the bankrupt drugstore chain (which filed in 2023) can’t find a buyer for its remaining locations or financing to emerge from bankruptcy, but its real estate may not be desirable to many Big Box tenants.
As for other troubled or “watch list” Big Box retailers with a sizable store base?
None is likely to file for bankruptcy in the near term.
Or close a significant number of stores.
Which means that fast growing retailers in search of Big Box space in 2024 will likely need to negotiate with Landlords for stores on a one-off basis for sites on the market rather than pursue bulk lease purchases for instant access to dozens of sites.