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Dozens of Toys "R" Us stores are about to close throughout Southern California. The void they leave behind could create room for offices, homes and spaces that focus on selling experiences rather than stuff. Or, California commercial real estate experts say, they could just sit empty.
Toys "R" Us management has informed its 33,000 employees that the company plans to close down all of its U.S. locations. The news follows the company's declaration of bankruptcy last September.
"The Toys 'R' Us bankruptcy is huge. It's a lot of locations," said John Tipton, a real estate partner at Allen Matkins in Century City. The answer for what to do with these spaces "will not be one-size-fits-all," he said.
Tipton can envision some locations becoming part of mixed-use developments. He points to changes underway at the Westside Pavilion as an example of this trend. The West Los Angeles shopping mall is transitioning into a place where offices, dining, a movie theater and shops will exist side by side.
Still, he said some big box retailers may still want to move into former Toys "R" Us stores. "Retail is clearly overbuilt, but it's not going away," Tipton said. However, he thinks locations in certain areas may have a tough time finding new tenants.
"When you get into some of the suburban locations, where there isn't that demand, and there's just too much supply, some of those locations may sit fallow for quite some time," he said.
The UCLA Anderson School of Management's Jerry Nickelsburg helped conduct a recent survey gauging how developers are feeling about commercial real estate prospects in California. Released in January, the survey found sentiment was generally positive, especially after passage of the GOP tax cuts.
The one dark cloud was retail. Nickelsburg said the reasons why are familiar. Consumers today are less willing to take the time to go to a shopping center and hunt for an item they could more easily buy online. Brick-and-mortar retailers need to offer customers something more than the item itself, he said.
"Experiential retail — where you are going into a store, you are meeting a clerk who's very knowledgable, where there's something worth going to the store for — that is the part of retail that seems to be pretty solid," Nickelsburg said.