I have recently been given the assignment by two different clients to help figure out “what’s next” for their recently vacated Hollywood Video stores. This question got me thinking about who is a likely replacement tenant in today’s economy?
In my market, there is approximately 35 of these stores. If they all average about 5,000 sq. ft. each, that would mean there would be about 175,000 sq. ft. coming online. These tenants would typically pay between $15-20/sq. ft., NNN in the properties they would occupy.
Let’s continue on with the impact this 175,000 sq. ft. has on my market. The lost rental impact is anywhere from $2.6 million to $3.5 million in year 1. We are one of the few states that charges rental tax, so now the cities would lose anywhere from $52,500 to $70,000 in lost rental tax with out considering the sales tax revenues generated at these stores. The cities are already having issues with balancing budgets and keeping from having to lay off police/firefighters, etc.
As you can see, the snowball effect of just this one tenant closing stores can have on a community.
Now that we know the immediate impact, who is going to fill this void? Could it be medical users? That might solve the lost rental income and rental tax but that does not solve the lost sales tax revenue for the cities.
What about splitting the space? Most of the commercial owners I know are cash poor, lenders are not lending, which means that the owners do not have the money to pay for the TIs to demise the space. Plus, some of these locations do not lend themselves to allow for such a demising.
So, my question to you is, “what’s next” for these stores?