Recent years have seen the Highland Aldi move up Indianapolis Boulevard to Hammond's Gateway Promenade, Outback Steakhouse move to a newer, larger building on U.S. 30 in Merrillville, and Dick's Sporting Goods rile up some Highland residents by skipping from the Highland Grove shopping center on U.S. 41 to Shops on Main in Schererville.
Commercial real estate observers say it might become more common for stores to hop to nearby shopping centers because of the slew of retail closures in recent years, including huge national chains like Sports Authority and H.H. Gregg. Others, including Macy's and Lowe's, have scaled back and shrunk their footprints. That can give retailers options to move somewhere nearby and get a better deal on rent when their leases expire, and some landlords may try to poach their neighbors' tenants to fill vacant space.
"You're absolutely seeing more poaching nationally," CoStar Group Market Economist Brandon Svec said. "It's really indicative of the hyper-competitive market, especially on the big-box side. There aren't many retailers looking for 25,000 square feet on the market. You have a lot of vacancies left behind by Sears, Kmart, Toys 'R Us and Carson's. Landlords with no other options will look at other centers."
To pry away stores, they might offer lower rents, more money for tenant improvements and other favorable terms. Some may even offer free rent or staggered rent arrangements, said Aaron McDermott, president of Latitude Commercial, a regional commercial real estate firm based in Schererville.
"As long as there is competition and new development there will be poaching," McDermott said. "New development makes the older developments have to rethink their product and upgrade, or face the likelihood someone may come along and offer a better product. Look at what happened at the Ultra Plaza Center. While I think that Ultra leaving had the ultimate effect on the property going to foreclosure, the developer had lost Aldi to the new Hammond project and frankly had done little to nothing to make that center appealing to new tenants."
After waves of brick-and-mortar closings, retailers have been shaking up the way they do business both nationwide and in the Region.
"Most retailers are not being as speculative about their real estate choices," McDermott said. "They are also shrinking their prototypes to smaller footprints. A lot of retailers are also catering towards same-day pick-up or delivery options to capture the online shopper. You are seeing a lot of the retailers essentially using their retail stores as distribution centers to deliver products to customers."
Target, Walmart, Strack and Van Til, Jewel-Osco and many others now deliver their products directly to the homes of online shoppers.
As more shopping migrates online, many retailers like Cabela's have shrunk the size of new stores. Others have looked to fill space with in-store stores, like the Amazon stores and return centers now located in Kohl's department stores.
Evolving business strategies mean retailers might have different needs and space requirements.
Dick's Sporting Goods moved into part of a former Jewel supermarket in Highland Grove in 2008, where it occupied nearly 48,000 square feet for the past decade. It recently moved about a half mile south to a 50,134-square-foot store at 101 U.S. 41 in Schererville, a space the bankrupt Gordman's vacated in the newer Shops of Main shopping center.
"I’m told it’s an expansion into larger space," said David Lasser, president of Commercial In-Sites in Merrillville. "(Retailers) always have, and always will, seek to confirm market availability and market rent, even if just to renew in their existing locations."
The difference is that now there's a glut of empty retail space nationally, especially big box stores that can't always be divided up into smaller spaces, CoStar's Svec said. Commercial property managers have scoured around for potential replacements such as driver's education schools, last-mile distribution centers for online retailers, trampoline parks, bounce houses and even Topgolf indoor golfing and entertainment venues.
"A lot depends on the viability of the retail corridor," Svec said. "Some centers might be afflicted because Toys R Us closed all its stores in bankruptcy. Others might be weakened because of less population density or purchasing power to attract new retailers, who are laser-focused on demographics."
As vacancies mount nationwide, retailers have the leverage in today's commercial marketplace, Svec said.
"Due to the closings, it's a very tenant-friendly environment," he said. "Landlords are looking for any retail tenants to fill that space so in negotiations the power dynamics are that retailers are holding most of the leverage."
There's not as much movement as there otherwise would be because most stores are locked into long-term leases, Svec said. But retailers now will often have more options within the same trade area when the leases are up.
"If they're somewhere that's outdated, they might move into a fresher space," he said. "You'll also see more battles among municipalities for stores since retailers are less likely to open another store in the vicinity and cannibalize off their own business. A lot of retailers have been culling back on total stores and reducing their footprint by closing stores that are performing less well so they're not cannibalizing themselves within the same trade area."
The business news you need
With a weekly newsletter looking back at local history.