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The commercial real estate world has experienced ample post-pandemic challenges, and this has never been more evident than with the rise in retailers filing for bankruptcy. Lately larger brands, especially retailers, are restructuring, downscaling, or filing for Chapter 11. For example, Big Lots plans to close more than 300 stores in the midst of its restructuring, and last year 99 Cents Only filed for Chapter 11, closing all 371 of the company’s stores.
Well-known retailers, like Bed, Bath, and Beyond and Rite Aid, are also in the process of closing their stores, leaving vacant spaces that are ripe for commercial real estate opportunities — opportunities that you should take advantage of. Here, we’ll dive into some real-world examples of retail bankruptcies and their effect on commercial real estate, and then show how you can leverage these opportunities to maximize the value of your next project.
The Impact of Bankruptcies on CRE
First, let’s take a closer look at the specifics of how retail bankruptcies impact commercial real estate. Obviously, when filing for Chapter 11, many retailers end up closing their stores and selling off their goods, leading to a large amount of real estate vacancies, especially for those larger stores that utilize a lot of resources and cost more in utilities due to a bigger floorplan. This can actually lead to a negative domino effect on surrounding retail stores, as foot traffic decreases at these larger retailers. This demonstrates that — surprisingly — retail bankruptcies can impact more than just the brand directly affected.
There may also be challenges in attracting new tenants, especially if location played a factor in the previous retailer closing, so landlords may need to resort to lowering leases if they’re struggling to find new stores to move in. And yet, in other places where the location is prime, leases might be raised in order to increase competition. It all depends on the specific situation.
For instance, when Bed, Bath, and Beyond filed for Chapter 11 in 2023, it ended up closing 360 of its namesake stores, along with 120 Buy Buy Baby stores. Other retailers flocked to take advantage of this commercial real estate opportunity. Burlington actually took over 50 of its locations for $13.53 million, while other retailers, like Macy’s and Michael’s, took on additional leases.
Burlington, in particular, has extensive experience dealing with retail bankruptcies. As CEO Michael O’Sullivan said, “Many of our most successful and productive stores today were once upon a time Circuit City, Toys R Us, Sports Authority, Linens ‘N Things.” Retail bankruptcies have opened the doors to new commercial real estate opportunities to companies like Burlington.
