As the economy slumps, the list of retailers closing in Tucson will likely get longer, making vacant storefronts and empty big boxes common sites across the Old Pueblo.
Already, American Home furniture stores, Linens 'n' Things and Mervyns have announced closures. Retail vacancy in and around Tucson has risen to more than 8 percent, and many working in commercial real estate say they expect that number to keep rising.
As it does, they said, rents will likely decline and many commercial projects will be put on hold.
"I don't think we've hit bottom," said Linda Montani, a retail specialist with Commercial Retail Advisors. "It's a real volatile time right now."
Most estimates through the second quarter place retail commercial vacancies at about 8.5 percent, up from 6.9 percent at the end of last year, according to the commercial real estate firm CB Richard Ellis.
"I think that between now and the end of the year that number will climb higher," said Pete Villaescusa, first vice president for CB Richard Ellis. "Consumers are not spending like they were a year ago, and the retailers are feeling that. People are holding off on major purchases."
Third-quarter reports from Picor Commercial Real Estate Services for office and industrial space in the Tucson area placed vacancies at 8.7 and 6 percent, respectively.
Many in the retail side of the industry are bracing for the closing of major retailers. Chains such as Mervyns use large commercial spaces, which in the current economy can be difficult to fill as fewer retailers are looking to expand.
American Home has four locations across Tucson, ranging in size from about 86,000 to 220,000 square feet. Messages left at its corporate headquarters were not returned, but the company recently filed for Chapter 11 bankruptcy and announced the closing of its Tucson stores, among others.
Greg Furrier, a principal with Picor Commercial Real Estate Services who is the broker for three of the four properties, said he is confident he can quickly find tenants for at least two of the spaces. American Home's warehouse, 2020 W. Prince Road, is a prime location because of its proximity to Interstate 10 and the Oracle Road corridor.
"When you go into the industrial properties, being near the freeway makes them better," Furrier said.
And a showroom at 4690 N. Oracle Road near the Tucson Mall also has a good location.
But the third showroom, at 9559 E. Golf Links Road, could prove trickier because the area has less commercial traffic and the building is a former Kmart.
If Furrier can't find a tenant, it's possible the building could be split into several different storefronts, he said. But that also has its challenges as prospective tenants may want only a small portion of the space, or the divisions could end up in awkward L-shapes.
Finding tenants to fill large spaces is daunting, but even more so in the current economy as there are few businesses expanding, Montani said.
"The tenants are large. It's expensive to lease," said Montani. "There are a lot less anchor tenants out there that are actually looking to expand now. So, you know, unfortunately they leave big vacancies."
The growing number of vacancies has led to cheaper rents, but so far that hasn't drawn very many tenants.
"It's a good time to rent; however, the phones aren't ringing," Montani said.
Meanwhile, a number of commercial projects are being put on hold, and there is concern that, in the long term, foreclosures might start hitting the commercial market in the same way they have rocked the residential market.
"It is possible," said Villaescusa, who said he has worked through times with higher vacancy rates. "I think that wouldn't be noticeable until maybe a year from now."
Payday loan stores likely to be re-leased
Since voters rejected Proposition 200, the so-called Payday Loan Reform Act, all payday lenders are set to sunset in July 2010, potentially opening up a lot of prime real estate across town.
There are more than 100 payday lenders in the greater Tucson area, but most commercial real estate experts said the closure of those storefronts wouldn't have much effect on the market.
"Generally the real estate is pretty good quality, so I think, based on that, there won't be too much trouble leasing the spaces," said Greg Furrier of Picor Commercial Real Estate Services. "A 1,000-foot space in the retail leasing business is the easiest space to re-lease."
Furrier and several other retail real estate experts said payday lenders are in high-visibility locations, so there will always be an interest in leasing them, and there is plenty of lead time to fill them.
And because the spaces are so small, the closure of more than 100 storefronts all at once will have nominal effect on the market, said Pete Villaescusa, first vice president at CB Richard Ellis.
"While there are a lot of them, I would guess the total of all the stores is about 150,000 square feet or less," he said.