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As small and mid-sized national retailers hit with months of declining same-store sales struggle to get off the canvas, commercial real estate brokers are focusing on local companies while waiting for national big-box stores to get back in the ring.

“What we are seeing is a lot of local retail happening – which says good things about our local market – but no national corporate stores at all,” said Colleen Johnson, vice president at CB Richard Ellis/Hubbell Commercial. “That all seized up about a year ago.”

Traditionally, Johnson said, the performance of regional malls has been a primary indicator of a metropolitan area’s retail health, adding that smaller retailers tend to follow the big-box stores generally drawn to enclosed malls.

“It is important to pay close attention to the malls and what’s happening there,” Johnson said. “Because when the nationals really start moving again, in terms of retail real estate, we are on the move again; we are recovering.”

The malls

Johnson said three of Greater Des Moines’ four regional malls are showing signs of stability: Merle Hay Mall, Valley West Mall and Jordan Creek Town Center.

“What we’ve seen, that I don’t think is true in a lot of other markets, is the stabilization of those (malls),” she said. “They have not lost (any large) tenants to this downturn. There is always some turnover … but they have maintained.”

Johnson said Merle Hay’s recently completed $12 million face-lift, which opened up six bays on the 1,163,000-square-foot property’s east side, has helped it attract new tenants in 2009, including Ultra Salon, Cosmetics & Fragrance Inc., Staples Inc., and a Shoe Carnival Inc. store slated to open Oct. 10.

Johnson said the owner isn’t “de-malling” Merle Hay, but the renovation certainly opened it up, giving more stores exterior access points in addition to interior entrances.

“What we are really trying to do is to create a hybrid mall so that there are multiple points of access to the retail stores,” said Elizabeth Holland, CEO of Merle Hay’s Chicago-based owner and property manager, Abbell Credit Corp.

Holland said Merle Hay is doing about $315 per square foot in annual retail sales, which it tracks on a trailing 12-month basis. Sales at the mall have remained about flat on a year-over-year basis, she said, adding that August sales were up approximately 7 percent from the same time last year.

“To be able to complete all of this and get those significant new tenants,” Johnson said, is a fairly strong indicator that Merle Hay Mall has stabilized and is doing well.

Steve Brower, Jordan Creek’s leasing director, said that mall’s occupancy rate is 98.4 percent. Compared to data compiled by Frandson & Associates L.C. for Hubbell Commercial’s 2009 Greater Des Moines Market Survey, that’s a 1.2 percentage point increase from the first quarter.

Brower said some spaces vacated by national tenants in the last year or so have been leased. Since January 2008, S&K Menswear, Whitehall Jewelers, Wilson’s Leather and Sharper Image have vacated the mall following bankruptcy protection filings.

“Hopefully we’ve seen the worst of that and will start seeing some positive results now,” Brower said, adding that five new tenants will be coming to the center in the next six months.

General Growth Properties Inc., a real-estate investment trust that owns Jordan Creek and about 200 other U.S. malls, filed for bankruptcy protection in April. A recent report by the Wall Street Journal said that General Growth doesn’t expect the filing to hurt its mall business, but analysts believe it could make it more difficult to retain tenants as leases expire.

Valley West Mall, which in 2003 completed a major renovation of its interior while Jordan Creek was under construction, “just hasn’t been hurt” by the new mall, Johnson said, adding that the addition of “creature comforts” has helped Valley West retain its major tenants. Valley West’s general manager, Paul Stender, could not be reached for comment. Hubbell’s market survey reported the mall’s first-quarter occupancy rate at 90.5 percent.

The fourth regional mall, Southridge, has been facing hard times.

“I think there is a lot of indication of their troubles,” Johnson said, referring to the exit of Steve & Barry’s, a national clothing retailer that was expected to revitalize the mall. The chain filed for bankruptcy protection and closed all of its stores near the end of 2008.

Pat Beckerdite, Southridge’s property manager, said two locally owned clothing stores have opened at the mall in recent weeks, as well as Midwest Mattress, which leased about 9,000 square feet on Sept. 26. Several holiday tenants will open in the fourth quarter, he said. A portion of the mall is being used as a film production studio for the movie “Blackbeard,” though the project is on hold while a controversy surrounding Iowa tax breaks for filmmakers is sorted out, Beckerdite said.

A 2008 fiscal year report filed in February with the U.S. Securities Exchange Commission by the Southridge’s co-owner, Macerich Co., listed the 863,000-square-foot mall’s gross leasable area as 84 percent occupied and reported annual sales of $168 per square foot.

“The more availability of temporary stores you see,” Johnson said, “the worse indicator that is” of a mall’s health. Johnson said that though seasonal store fronts can generate traffic, if more than 10 percent of a mall’s occupancy is made up of stores with leases shorter than 12 months, “you’ve got a problem.”

Beckerdite declined to disclose current occupancy rates.

Holiday forecast

Johnson said she expects local retail sales to be strong in the fourth quarter, but said they won’t necessarily increase over last year. “I think if they can hold close to where they were last year, most people would be very happy about that,” she said. “I think there is pent-up demand on the part of consumers, and there is never a better excuse to unleash that than the holidays.”

“Given the state of the economy and the fact that unemployment is still rising,” said Meghan O’Brien, an Iowa State University Extension economist, “I don’t think that it’s going to be a good holiday shopping season.”

O’Brien said that unemployed people, who are struggling with a lack of available credit, are focused on financing basic living expenses and don’t have a lot of disposable income. According to Iowa Workforce Development, Iowa’s seasonally adjusted unemployment rate rose to 6.8 percent in August, its highest level since 1986. And those who have jobs may be wary of using credit cards for holiday shopping, fearing they might lose their jobs, O’Brien said.

“It’s a little early to predict how dramatic that will be,” she said, adding that she expects a “monumentally different holiday season and a lot of competition” among retailers going into the holiday season as thrifty consumers continue shopping at large discounters such as Wal-Mart and Target.

O’Brien said small and mid-sized retailers operating out of the regional malls have a hard time competing with large retailers due to factors such as high overhead costs and less ability to bargain with suppliers. “They don’t have the economies of scale that the large retailers do,” she said.