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Forever 21 and the future of commercial retail space

Real Estate Developments

by Artificial Photography, from Unsplash

News of Forever 21’s bankruptcy this week marks another grim chapter in the nation’s “retail apocalypse”. On the real estate front, the store leases 12.2 million square feet nationwide at a cost of about $450 million, much of which will likely never be paid. Nationally, 8600 retail spaces will close this year, a big jump from last year’s 5800 closures. Naturally, shopping malls and commercial REITs have been hardest-hit by this trend. Although New York City is not known for its shopping malls, it too has been severely affected by changes in the retail space. [1]

Vacant retail space in Manhattan jumped from 6 to 20 percent from 2016-2018, with some stretches of the city’s pavement seeing rates greater than 50 percent. Rising rents are the proximate cause of this citywide trend, although this factor is intertwined with many others, including the retail apocalypse of e-commerce as well as individual decisions by major brands to abandon “flagship” stores. Flagship stores in NYC are often lossmakers, trading a local loss to burnish a brand’s prestige. Lately, it seems like many companies have decided the tradeoff is no longer worth making as digital marketing and advertising on platforms like Instagram overtake the necessity of prime brick-and mortar locations. [2]

Although stories about retail undoubtedly skew gloomy, recent data suggests that bookstores, especially independent ones, have emerged from more than two decades of disruption by firms like Barnes & Noble and then Amazon to stabilize and even begin growing again. Although Amazon continues to offer rock-bottom prices on books, the material charms of physical books and bookstores suggests the transformation of retail as a consequence of e-commerce may ultimately be quite a bit less than an apocalypse.

[1] Sun, K. and Diduch, M. (October 2019) For mall owners like Simon, Brookfield and Vornado, Forever 21 bankruptcy signals more trouble ahead from The Real Deal Accessed October 4 2019

[2] Kilgannon, C. (September 2018) The Empty Storefronts of New York: A Panoramic View from New York Times Accessed October 4 2019

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