99 Cents Store Closures Unlock 3.8M sf SoCal Retail Revamp

Key Takeaway

• 99 Cents Only Stores' closure opens 3.8 million sq ft of retail space in Southern California, presenting significant opportunities for landlords.
• The chain's bankruptcy and store closures across SoCal, Texas, Nevada, and Arizona are attributed to pandemic impacts, inflation, and theft.
• Real estate professionals anticipate high demand for the vacated spaces due to low vacancy rates and potential for rent increases.

A Retail Reset in Southern California

The abrupt closure of 99 Cents Only Stores, a staple in the discount retail sector since 1982, has sent ripples through Southern California's commercial real estate market. With the chain's bankruptcy announcement leading to the shuttering of all 371 stores, including 164 in Southern California, the region faces a 3.8 million-square-foot vacancy in its retail landscape. This development, while initially seeming like a blow to the market, is instead being viewed by local real estate professionals as a golden opportunity to revitalize and repurpose prime retail space.

The Silver Lining in Retail Vacancies

Despite the challenges posed by the pandemic, inflation, and theft that led to the downfall of 99 Cents Only Stores, the commercial real estate market in Southern California appears poised for a quick recovery. The stores, averaging 23,000 square feet and falling into the "junior box" retail category, occupy a niche in the market that has seen particularly low vacancy rates. With the current retail vacancy across greater Los Angeles at 5.2 percent and Orange County even lower at 4 percent, according to JLL and Kidder Mathews, the demand for such spaces is high. This demand, coupled with the potential for landlords to renegotiate leases at higher rates post-bankruptcy, paints a promising picture for the future of these locations.

A Market Ready for Transformation

The closure of 99 Cents Only Stores is not just a story of retail decline but also one of market evolution and opportunity. The interest from investors and other retailers in the soon-to-be-vacant properties is a testament to the desirability of the locations and the potential for growth and innovation in the retail sector. With at least 40 investors reaching out with interest in the properties and a dozen retailers reviewing the chain’s portfolio for opportunities, the stage is set for a significant transformation in Southern California's retail landscape.

A Broader Perspective on Retail Real Estate

The situation with 99 Cents Only Stores underscores a broader trend in the retail real estate market, where challenges lead to opportunities for reinvention and growth. Similar to the lease renewal of Cigna Health and Life Insurance Company in Sunrise and the opening of a new Gucci boutique in Dadeland Mall, the commercial real estate sector continues to adapt and thrive amidst changes. These developments highlight the resilience of the market and the ongoing demand for quality retail space, whether for luxury brands or health care services.

Management Quotes

• Jamie Brooks, CBRE Senior Vice President:

  "Over the past five years, there’s just been a lack of overall quality box inventory in L.A. proper or infill Los Angeles. 99 [Cents Only], for all its challenges, controls some magnificent real estate."

• Richard Rizika, Beta Agency partner:

  "Historically those leases were very competitively negotiated. There is an opportunity for a lot of the landlords to go ahead and increase rents if and when those leases were rejected by the bankruptcy court."

• Barbara Armendariz, founder of SharpLine Commercial Partners:

  "They’re going to get snatched up very quickly, or as easily as the bankruptcy court allows."