CREJ - Retail Properties Quarterly - May 2015
The American shopping mall is dead! Or so some would have you believe. Since 2010, more than two dozen shopping malls across the country have closed. A proliferation of news articles and opinion pieces emphatically state that the enclosed mall concept is a thing of the past. But before we place the final R.I.P. placard on the mall, it might be worthwhile to consider some other factors. Malls do not die because the idea of an enclosed shopping venue is unattractive and obsolete. They die because demographics shift, shopping habits change, mall owners face financial challenges, malls become overly saturated with the same stores and merchandise, or a better retail venue is built nearby. The consolidation of department stores is one example – think about Macy’s buying Rich’s, and maybe Belk soon as well. If a mall does shut its doors, it is because it failed to adapt. As far back as 10 B.C., people gathered together to conduct commerce. There is something magical about being among hundreds or thousands of other people shopping. To illustrate that malls are not on the downward spiral, consider the following: 1) mall rents are on the increase; 2) mall sales are on the increase; and 3) net operating income in malls is increasing – in 2014 shopping mall NOI recorded the highest year-over-year growth in 14 years. These three facts alone should dispel any rumors about the demise of the American mall. No discussion about any subject is complete without inserting the effect millennials will have on the mall. Conventional thought today would purport that this demographic will be the final nail in the proverbial coffin. But that would be a misguided conclusion. In a recent study, Opinion Lab concluded that among millennials: 1) 85 percent planned to go to a mall this summer; 2) 60 percent say they go at least once a month; 3) nearly half rank browsing in stores as their No. 1 reason for going to the mall; and 4) only 10 percent say there is nothing to motivate them to spend time in a mall. The retail specialty practice group at Cooper Carry has been involved in the design of over 5 million square feet of recent retail projects, encompassing new construction and renovation of malls and large open-air projects. Landmark Mall near Washington, D.C., is one such example. Built in 1965, the mall lost its luster and the owner suffered a financial crisis. New owners are repositioning the mall to become an urban mixed-use project. The plan includes taking off the roof, demolishing some retail space and adding apartments. The conclusion is simple – if 3.2 percent of American malls have failed, then 96.8 percent have not. Malls will refine or reposition themselves as they respond to changing demographics, shopping habits or oversaturation of similar retailers. The bottom line is most of the malls in trouble will get new owners with the capital it takes to achieve the refinement or repositioning required to remain a viable investment asset. Those that do not will be part of the 3.2 percent. Ultimately, the key to keeping the American mall alive and well is adapting to current trends. This means creating more walkable and appealing space that caters to demographic shifts and changes in shopping habits.