Ron Davis, Phoenix Business Journal
The bankruptcy of home goods retailers Bed Bath & Beyond and Buybuy Baby will leave more than 10 big box spaces vacant in the Valley. Retailers, landlords, and commercial brokers could see an opportunity to write the next chapter of those empty buildings
Generally, a Bed Bath & Beyond store ranges between 25,000 and 35,000 square feet, said Ryan Desmond, a partner at Phoenix-based Western Retail Advisors. While the bankruptcy proceedings still need to play out a little further, he said those spaces could be in high demand from other retail tenants or shopping center owners.
While Bed Bath & Beyond will close its stores, it still has lease agreements with the landlords. The duration of the remainder of those leases could vary, but they could possibly come with multiple options for extensions.
“So in cases another retailer might say, ‘Jeez, there’s another eight years on that lease and a pretty attractive rent, a great shopping center, I’ll pay X dollars to take that lease over,'” Desmond said. “In other cases, the landlord themselves may be the winning bidder because they want to retain control of the site to release it to who they’d like to see there. … Landlords are going to be in many cases happy to get that space back because they can fill the space at a better rent, and maybe a different use that they think is more advantageous to the center.”
There are examples of both those scenarios in the Phoenix market in a recent bankruptcy court auction.
Burlington Coat Factory, a discount clothing retailer, was especially active in the auction in late June, successfully bidding on 44 leases for an aggregate of $12 million, including one in Avondale. Schnitzer Properties, the owner of Chandler Pavilions shopping center, raised its hand for the closed Bed Bath & Beyond located within the center for $350,000. The bid deadline for the auction was June 26, according to affiliated publication Albany Business Review.
And in June, Crate & Barrel opened an outlet store in a former Bed Bath & Beyond at the Chandler Village Center, the Arizona Republic reported.
Landlords likely seeking single tenants
Desmond said that landlords would look to backfill the entire space to one tenant. The simple reason for that, Desmond said, is a steep cost, possibly $1 million to demise the space, spilt the utilities and make changes to the facade or elevation of the building to accommodate two users.
A recent example of one tenant backfilling a closed big box space is Picklemall at the Arizona Mills shopping center in Tempe. Picklemall will occupy a 104,000-square-foot space previously occupied by At Home Stores and install 24 pickleball courts to replace what was once aisles of home decor goods. It will be Picklemall’s first location in the United States.
For a vacant Bed Bath & Beyond, Desmond said, landlords will likely look at established credit tenants with strong financials first rather than take a gamble on an unproven entertainment concept. He pointed to examples of well-established retailers such as Harkins Theaters, Aldi, Bob’s Discount Furniture and Nordstrom Rack — all of which have taken spaces from retailers that went out of business in the Valley.
Phoenix’s retail market started the year strong with 1.2 million of positive net absorption and a vacancy rate of 4.3% in the first quarter of 2023. With a full-service asking average asking rent of $17.40 per square foot, the rates are higher than the pre-pandemic rates during the first quarter of 2019, according to a market report from CBRE Group Inc.
Bed Bath & Beyond (Nasdaq: BBBY) has been in financial distress for more than a year. It replaced its CEO last year after sales plummeted in the first quarter. It started closing stores to cut expenses and had warned as early as January that bankruptcy was possible. In February, Bed Bath & Beyond struck a unique financing deal with hedge fund Hudson Bay Capital Management. But that deal fell apart in April.
In the Phoenix-area there are nine Bed Bath & Beyond stores, and across the state there 13 Bed Bath & Beyond locations.
These Arizona locations of Bed Bath & Beyond are still open or have been sold as of July 21:
Avondale – 10060 W. McDowell Road**
Chandler – 3445 W. Frye Road**
Chandler – 850 N. 54th Street**
Gilbert – 2793 S. Market Street*
Glendale – 7340 W. Bell Road*
Phoenix – 7000 E. Mayo Blvd*
Prescott – 3250 Gateway Boulevard*
Tucson – 6310 N. Oracle Road*
These Arizona locations of Bed Bath & Beyond have already closed:
Mesa – 837 N. Dobson Road
Phoenix – 1919 E. Camelback Road
Surprise – 13723 W. Bell Road
Tucson – 4811 E. Grant Road
Yuma – 1212 S. Castle Dome Avenue
* Location is still open according to Bed Bath & Beyond’s website ** Location has been recently sold