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Retail Space Market Can Take the Sears’ Departures in Stride

A broker handling two San Diego stores on Sears Holdings Corp.’s closure list says it likely won’t take long for the properties to get their next tenants, thanks to a tight local retail market for big-box vacancies in good locations.

“The interest among the retailers is already out there,” said Mike Moser, a senior vice president in the local office of CB Richard Ellis handling the disposition of the San Diego sites. “We had started getting inquiries before the closings were actually announced by Sears.”

Sears stores at 12080 Carmel Mountain Road at Carmel Mountain Plaza and 7655 Clairemont Mesa Blvd. in Kearny Mesa were among 80 planned closings nationwide announced Dec. 29 by the retailer, though exact shutdown dates have not been disclosed.

Unhappy Holidays

Illinois-based Sears eventually plans to shut 100 to 120 Sears and Kmart stores, following a disappointing holiday sales season.

Both San Diego Sears stores are former Kmart locations that were converted to the Sears Essentials format, geared to home appliances and related housewares, following the 2005 merger of Sears and Kmart Holdings Corp. Both are leased by Sears from other parties who own the buildings.

Brokerage and leasing officials are not naming specific retailers interested in the sites, but big-box locations vacated in San Diego County in the past four years have generally been quickly refilled, largely because of a dearth of new retail construction in desired venues. The region’s overall retail vacancy rate currently hovers around 5 percent, among the lowest in the nation for major metro markets.

Most recently, retail observers note, all five local sites vacated by the defunct Borders bookstore chain in mid to late 2011 are now either spoken for or close to being leased to other retailers.

Moser said there are eight to 10 U.S. retailers that could potentially occupy the San Diego Sears spots — a total of 107,870 square feet at Carmel Mountain and 94,500 square feet at Kearny Mesa.

With many national retailers in a format downsizing mode, however, it may take more than one chain to completely fill one or both spaces.

‘Split Decisions’

That’s what’s happening at another spot at Carmel Mountain Plaza, a large shopping center owned by San Diego-based American Assets Trust Inc.

In late 2011, the center’s leasing agent, locally based Flocke & Avoyer, signed up Nordstrom Rack to occupy half of an approximately 80,000-square-foot space vacated in 2008 by the defunct Mervyn’s chain. The Nordstrom store is expected to open in fall 2012.

“We’re in talks with other retailers to take the other half,” said John Still, senior vice president with Flocke & Avoyer.

Moser noted that Sears itself may decide to downsize its space requirements rather than close down completely at other locations locally and nationally. In those cases, it would turn over a chunk of space to be used by other retailers or restaurant operators.

For instance, at Westfield Group’s Westfield UTC mall in San Diego, Sears has already downsized its full-line department store. A portion of the ground-floor space formerly used by Sears will soon be occupied by the Dallas-based restaurant chain Corner Bakery Café.

According to CoStar Group, the Carmel Mountain store was built in 1993, and the Sears building is owned by New York-based Lexington Realty Trust, which purchased it for $38.3 million in 2007.

The Kearny Mesa Sears site, built in 1974, has been owned for several years by various entities of the San Diego-based McGrath Family Trust.

Sears Holdings reported Dec. 27 that its Kmart stores saw fourth-quarter 2011 sales decline 4.4 percent from a year ago, while Sears stores had a 6 percent drop-off.

George Whalin, president of Retail Management Consultants in Carlsbad, said he was somewhat surprised to see two San Diego stores wind up on Sears’ closure list, and that neither was among the chain’s struggling full-line department stores.

He would not be surprised if other local Sears and Kmart stores, and more throughout California, eventually get closed or downsized, considering the retailer’s continuing struggles with its sales and product mixes.

“Their same-store sales have been declining now for six years — you just can’t do that and stay around,” Whalin said.

He said one potential sign that the real estate shrink-down might be contained is Sears Holdings’ recent hiring of Ron Boire, former CEO of Brookstone Inc., as chief merchandising officer and president of its Sears and Kmart brands.

“This new person is known in the industry to be pretty good,” Whalin said. “But that company may be running out of chances.”

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