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The national retail meltdown is starting to hit the Lincoln area, and experts say it could have a big effect on local shopping centers.

Lincoln had largely escaped large retail store closings over the past few years, but that has changed in the first part of this year, as both Toys 'R' Us and Bon-Ton Stores, parent company of Younkers, have announced plans to liquidate.

That will add two empty big-box spaces to the local market at a time when most retailers are pulling back rather than expanding.

"Retail is just not active, especially larger retail," said Richard Meginnis, president of NAI FMA Realty.

NAI FMA's market report showed the local retail vacancy rate was at 4.4 percent at the end of 2017, which was the lowest rate the company has recorded in the nine years it has produced its report.

Lincoln's low retail vacancy rate has largely been due to the fact the city has dodged large big-box store closings while also adding new large stores. For example, both Sears and Gordmans, which have closed large numbers of stores nationwide, have kept their Lincoln locations opened. Costco and Dick's Sporting Goods both opened locations in Lincoln last year.

But the tide appears to be changing.

Both Toys 'R' Us, which occupies about 30,000 square feet at 5220 N. 27th St., and Younkers, which has 100,000 square feet at Gateway Mall, are expected to close sometime this summer.

Those closings are a part of a wave of retail closings nationwide.

Commercial real estate services firm CoStar Group said earlier this month there already is more than 90 million square feet of retail space scheduled to be vacated this year, which means 2018 is well on track to top the record 105 million square feet of space that was vacated last year.

A January report from commercial real estate brokerage firm Cushman & Wakefield estimated more than 12,000 individual store locations will close this year, which would be about one-third more than closed last year.

The question then, with all that vacant retail space on the market, becomes what will fill it?

Meginnis said it's not likely to be big-box retail stores.

"You don't see 20,000-, 30,000 (square feet)-and-up retailers in this market looking," he said.

The types of clients he sees looking for that amount of space are offices or call centers.

Shopping centers actually make good locations for those types of businesses because of their acres and acres of parking, Meginnis said.

Possible replacements for Younkers could include a hotel, self-storage or senior housing, said Kent Thompson, owner of Coldwell Banker Thompson Commercial Realty.

Even though mall retailers continue to shrink, "People are still going to need places to gather," he said.

Entertainment-focused tenants also are an option.

Gateway saw a former Circuit City store transformed into a fitness club several years ago, and it announced plans last month to bring Round 1 Bowling & Amusement to the mall early next year.

Another large empty retail space, the former Russ's Market at 70th and Van Dorn streets, is being remodeled into a trampoline park.

Drew Myers, a senior analyst with CoStar Group, told the Journal Star last month there is 6 million more square feet dedicated to entertainment space in malls today than there was in 2012, and he said entertainment tenants now take up about 9 percent of mall space nationwide.

Gateway Mall management hinted in a statement earlier this month that likely replacements for Younkers will not be of the big-box, anchor tenant variety.

"We know that retail real estate is a constantly evolving entity, and we look at possible former anchor locations as a huge opportunity to add mixed-use components to the property as we serve our guests’ evolving needs," marketing director Becky Sidles said in an email.

Of course, smaller retail tenants also could be an option. Among the retail businesses that continue to expand their footprint, both in Lincoln and nationally, are wireless phone stores, dollar stores and auto parts stores.

Both Gateway and the Lincoln Crossing mall, where Toys 'R' Us is located, are owned by large national companies, which Thompson said is a good thing for their leasing prospects.

Those companies have deep pockets and a national presence, which allows them to see trends and find the right kinds of tenants.

"It's quite a blessing," Thompson said.

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Reach the writer at 402-473-2647 or molberding@journalstar.com.

On Twitter @LincolnBizBuzz.

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Business editor/reporter

Matt Olberding is a Lincoln native and University of Nebraska-Lincoln graduate who has been covering business for the Journal Star since 2005.

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