Minnesota big-box retail closures offer chance for creativity to fill scarce mall space

Bed Bath & Beyond has been a hallmark of strip malls and shopping centers across America since the mid-1980s, almost the definition of a big-box retailer with its warehouse-like selection of home goods.

But the store's extra-tall signage and unmissable wide lettering loomed above an empty parking lot at Rosedale Commons on Monday. The location was one of several to shut down recently in Minnesota with even more expected to close as the company grapples with Chapter 11 bankruptcy.

Several big-box stores will soon disappear— if they haven't started fading away already — from the Twin Cities with a growing list of companies announcing impending closings.

David's Bridal filed for bankruptcy in April and will likely close the handful of its locations in Minnesota. Bed Bath & Beyond and its sister store buybuy Baby started their closing sales last week. Other large stores have emptied, including the Walmart in Brooklyn Center that shuttered last month and the Best Buy in Shakopee that closed in March.

While store closings are usually looked at as a negative development, many local real estate brokers and property managers said that with few store vacancies on the market, the closures will provide relief in a low-inventory market, allowing for new tenants and creative concepts.

"When it comes to the David's Bridal announcement and Bed Bath & Beyond," said Stefanie Meyer, senior vice president and principal at Mid-America Real Estate, "it is a really welcomed situation for these tenants who have been trying to find opportunities in these really tight areas."

No vacancy

In April, the real estate firm Cushman & Wakefield reported that the projected shopping center vacancy rate for the Twin Cities for the first quarter of 2023 was 4.8%, even lower than the historically low national retail vacancy rate of 5.6%. In the first quarter of last year, the retail market absorbed or leased 266,446 square feet of shopping center space locally. This past quarter, retailers absorbed only an estimated 16,548 square feet.

The market has been tight since before the pandemic, Meyer said. Six months ago, she and many retail brokers started working on potential deals for spaces rumored to have financial issues, including Bed Bath & Beyond. Brokers have had to be more proactive in recent months and resort to "knocking on doors," checking in with landlords 18 to 24 months before they have a vacancy, Meyer said.

"There really has not been a lot of great real estate options," said Terese Reiling-Holden, senior vice president at Colliers who specializes in retail landlord and tenant representation.

Retailers want to be in dense cities with day and night traffic from people working and going out for leisure. They want good highway access and high-income resident demographics, Reiling-Holden said. Some popular markets in the Twin Cities include Maple Grove, Coon Rapids, Roseville and Woodbury.

Even with the growth of online sales, brick-and-mortar operations are not dead. Since the end of the pandemic, there has been a return to in-person shopping as people want to go into stores to experience products, Reiling-Holden said.

Size matters

Likely the largest challenge for many of these vacancies is the sheer size of some of the spaces. For example, the Brooklyn Center Walmart is about 190,000 square feet, and only a few retailers can fill a space that large.

Walmart spokeswoman Lauren Willis confirmed the retailer is "actively marketing the property to potential buyers" and working with the city on next steps.

Brooklyn Center is hopeful to find a single user for the space. But there's also interest in turning it into a destination — similar to Asia Mall, which opened last year in the former Gander Mountain in Eden Prairie — or an international food village.

It took at least a year for the investors who opened Asia Mall to find the right space, said Marshall Nguyen of the Caspian Group, who helped broker the development.

Nguyen said that even now, many big retail locations are unavailable. He is part of another development in Illinois that's converting part of an old Sam's Club into a golf simulator and a grocery store.

"There's opportunity," he said, "if you have the right concept."

It can be difficult and expensive to subdivide large spaces. However, it can be done. Meyer pointed to a Shopko department store in Marshall, Minn., which recently converted into a Harbor Freight Tools with space for two other tenants. She also mentioned an old grocery store in Hudson, Wis., which was made into a Goodwill, a Planet Fitness and a Michaels.

Room for creativity

While traditional tenants such as fitness centers, groceries and furniture stores could be possible future tenants, there has been a growing trend of large big-box stores becoming entertainment spaces or more experiential retail. Meyer said she is working with four groups to find spaces for entertainment concepts.

Upscale mini golf venue Puttshack should open next spring on the second floor of the former Herberger's building at Southdale Center. Last summer, Dick's opened its House of Sport with a track field and climbing wall at the former Sears at Ridgedale Center in Minnetonka. Dick's will also move into a new building at Rosedale Center, once the site of a Herberger's.

Several pickleball venues also have opened in warehouse spaces throughout the Twin Cities. Some retailers are also repurposing retail floors with stores in the front and warehouse space in the back, said Jeff Hildahl, senior vice president of properties and leasing for Minneapolis-based Kraus-Anderson Realty.

"There's always another opportunity as a tenant departs," Hildahl said. "Some retailers are refining their concepts to produce better volumes and draw more shoppers. ... There's also a lot more experiential retailing happening, a wave of food and restaurant concepts and some creative repurposing of space."

With much retail space in first-ring suburbs going quickly, retailers' interest has started to bleed into greater Minnesota, said Lisa Christianson, owner of Christianson & Company Commercial Real Estate Services.

"As in-town stuff gets saturated, retailers are looking to expand in other markets," she said.

Staff writer Tim Harlow contributed to this report.