Bed Bath & Beyond’s Woes Prompt Landlords to Line Up New Tenants

One of the bigger Bed Bath & Beyond landlords has received commitments from tenants to fill all 12 locations if and when they close, according to a person familiar with the matter, including Sephora, Trader Joe’s,

Dick’s Sporting Goods Inc.,

T.J. Maxx,

Ross Stores Inc.

and HomeGoods.

After years of shrinking their real-estate footprints, big-box retailers such as bookseller Barnes & Noble and discount-clothing store Burlington have shown signs of expanding again. Demand for larger retail spaces is particularly strong in the Sunbelt region, where the population has grown significantly over the last decade but very little new retail has been built since the 2008 financial crisis, said Chuck McShane, director of market analytics for the Carolinas at

CoStar Group Inc.

Retail’s surprisingly strong recovery from the Covid-19 pandemic persisted in 2022 as shoppers continued to spend in person. Nationwide, retailers opened 2,400 more stores than they closed last year, marking the largest net expansion in a decade, according to commercial real-estate services firm

Cushman & Wakefield.

Demand was particularly strong for shopping centers, where vacancy declined to 5.7% in the fourth quarter, the lowest level since at least 2007, while asking rents increased.

“We have not seen any indication of a slowdown,” said Adam Schwegman, senior vice president of leasing for North American Properties, which owns about 3 million square feet of retail across eight properties. “Our properties all saw a really good fourth quarter.”

Plenty of challenges lie ahead. Consumer spending fell in December, with U.S. households pulling back on the purchase of goods even as inflation cooled. Corporate layoffs are proliferating beyond the tech sector, and wage growth slowed last month even though overall unemployment remains low. 

Several large retailers have filed for bankruptcy or have warned that they might, including Bed Bath & Beyond and

Party City Holdco Inc.

Bed Bath & Beyond said last week that it had defaulted on its credit lines after previously warning that it was exploring filing for bankruptcy protection. The company, which had 950 locations across the country as of late November between the flagship chain and its Buybuy Baby and Harmon banners, previously said it would close 150 stores.

On Friday, the company said that it would close 87 additional Bed Bath & Beyond locations, five Buybuy Baby stores and all of its remaining Harmon stores.

“It’s a big waiting game out there right now between Party City and Bed Bath,” said Spence Mehl, partner at RCS Real Estate Advisors, who led a team hired by Bed Bath & Beyond to evaluate and improve its real-estate strategy from the end of 2018 through 2021. “It’s a lot of stores that could become vacant.”

Landlords have been scrambling over the past six months to line up potential tenants to fill the vacancies if Bed Bath & Beyond closes and so far seem optimistic that the past two years of strong leasing activity will continue, Mr. Mehl said. Working in their favor is the fact that Bed Bath & Beyond typically leased in dominant shopping centers in the suburbs, where retail has performed particularly well since the pandemic as the increase in remote work boosted shopping and consumers had more money to spend.

Bed Bath & Beyond’s stores range in size from about 18,000 square feet to 70,000 square feet, Mr. Mehl said, a much wider range than many other retailers. This means it is unlikely one company will come in and scoop up a large number of vacant spaces. Replacing tenants is also time-consuming and costly, he said. Landlords will likely lose rent payments during the bankruptcy process and while finalizing new tenants, on top of paying broker fees and costs incurred from reconfiguring the space for new occupants.

“That’s a lot of stress in the marketplace today, regardless of how well the landlords have done over the past two years,” Mr. Mehl said. But he added, “For the right price, a lot of these spaces can be backfilled.” 

Mr. Schwegman of North American Properties said the company recently completed plans for a 22,000-square-foot anchor space previously occupied by Bed Bath & Beyond at one of its Atlanta-area shopping centers. The landlord will subdivide the space, with Barnes & Noble taking 15,000 square feet and two other tenants, an apparel and a beauty retailer whose leases are still being finalized, filling the remaining footprint. 

“It is expensive to reconfigure a single big-box use into three spaces,” said Mr. Schwegman, who said the company fielded multiple inquiries from prospective tenants. “At the end of the day, we believe that our customers are going to be much better served with the new offering versus what was there.” 

Write to Kate King at [email protected]

One of the bigger Bed Bath & Beyond landlords has received commitments from tenants to fill all 12 locations if and when they close, according to a person familiar with the matter, including Sephora, Trader Joe’s,

Dick’s Sporting Goods Inc.,

T.J. Maxx,

Ross Stores Inc.

and HomeGoods.

After years of shrinking their real-estate footprints, big-box retailers such as bookseller Barnes & Noble and discount-clothing store Burlington have shown signs of expanding again. Demand for larger retail spaces is particularly strong in the Sunbelt region, where the population has grown significantly over the last decade but very little new retail has been built since the 2008 financial crisis, said Chuck McShane, director of market analytics for the Carolinas at

CoStar Group Inc.

Retail’s surprisingly strong recovery from the Covid-19 pandemic persisted in 2022 as shoppers continued to spend in person. Nationwide, retailers opened 2,400 more stores than they closed last year, marking the largest net expansion in a decade, according to commercial real-estate services firm

Cushman & Wakefield.

Demand was particularly strong for shopping centers, where vacancy declined to 5.7% in the fourth quarter, the lowest level since at least 2007, while asking rents increased.

“We have not seen any indication of a slowdown,” said Adam Schwegman, senior vice president of leasing for North American Properties, which owns about 3 million square feet of retail across eight properties. “Our properties all saw a really good fourth quarter.”

Plenty of challenges lie ahead. Consumer spending fell in December, with U.S. households pulling back on the purchase of goods even as inflation cooled. Corporate layoffs are proliferating beyond the tech sector, and wage growth slowed last month even though overall unemployment remains low. 

Several large retailers have filed for bankruptcy or have warned that they might, including Bed Bath & Beyond and

Party City Holdco Inc.

Bed Bath & Beyond said last week that it had defaulted on its credit lines after previously warning that it was exploring filing for bankruptcy protection. The company, which had 950 locations across the country as of late November between the flagship chain and its Buybuy Baby and Harmon banners, previously said it would close 150 stores.

On Friday, the company said that it would close 87 additional Bed Bath & Beyond locations, five Buybuy Baby stores and all of its remaining Harmon stores.

“It’s a big waiting game out there right now between Party City and Bed Bath,” said Spence Mehl, partner at RCS Real Estate Advisors, who led a team hired by Bed Bath & Beyond to evaluate and improve its real-estate strategy from the end of 2018 through 2021. “It’s a lot of stores that could become vacant.”

Landlords have been scrambling over the past six months to line up potential tenants to fill the vacancies if Bed Bath & Beyond closes and so far seem optimistic that the past two years of strong leasing activity will continue, Mr. Mehl said. Working in their favor is the fact that Bed Bath & Beyond typically leased in dominant shopping centers in the suburbs, where retail has performed particularly well since the pandemic as the increase in remote work boosted shopping and consumers had more money to spend.

Bed Bath & Beyond’s stores range in size from about 18,000 square feet to 70,000 square feet, Mr. Mehl said, a much wider range than many other retailers. This means it is unlikely one company will come in and scoop up a large number of vacant spaces. Replacing tenants is also time-consuming and costly, he said. Landlords will likely lose rent payments during the bankruptcy process and while finalizing new tenants, on top of paying broker fees and costs incurred from reconfiguring the space for new occupants.

“That’s a lot of stress in the marketplace today, regardless of how well the landlords have done over the past two years,” Mr. Mehl said. But he added, “For the right price, a lot of these spaces can be backfilled.” 

Mr. Schwegman of North American Properties said the company recently completed plans for a 22,000-square-foot anchor space previously occupied by Bed Bath & Beyond at one of its Atlanta-area shopping centers. The landlord will subdivide the space, with Barnes & Noble taking 15,000 square feet and two other tenants, an apparel and a beauty retailer whose leases are still being finalized, filling the remaining footprint. 

“It is expensive to reconfigure a single big-box use into three spaces,” said Mr. Schwegman, who said the company fielded multiple inquiries from prospective tenants. “At the end of the day, we believe that our customers are going to be much better served with the new offering versus what was there.” 

Write to Kate King at [email protected]