share this article!

On May 1, 2020, a security guard rides through a closed Macy’s department store at The Galleria shopping mall in Houston, Texas, after the mall reopened following the coronavirus illness (COVID-19) pandemic. Adrees Latif/REUTERS Reuters, July 9 – Even in the depths of the 2009 financial crisis, the owners of the world’s largest shopping malls never had it so bad. According to new real estate industry data from June, vacancy rates in malls across the United States may surpass those in suburban shopping centers and strip malls. The figures from property consultancy Jones Lang LaSalle come on the heels of a slew of bankruptcies and takeovers that have seen even sector leader and Mall of America owner Simon Property Group (SPG.N) hand over control of some buildings to creditors or take over broken retail operations to pay off debts. According to JLL research, mall vacancy rates in the United States would peak at just under 9% this year, compared to 7.8% for smaller shopping centers and 7% for “power centers,” which are open-air shopping malls anchored by big box retailers like Best Buy (BBY.N) or Target (TGT.N). According to experts, a more significant shift is taking place, with property owners focusing their investments on open-air settings and smaller establishments in less expensive places where shoppers can feel more at ease in the post-COVID era. Macy’s (M.N), Lululemon Athletica (LULU.O), Bed Bath and Beyond (BBBY.O), Warby Parker, and Walmart’s (WMT.N) Bonobos are among the shops with deals completed or in the works. Macy’s, for example, has closed its massive store in the Water Tower Place building on Michigan Avenue’s “Magnificent Mile,” which has drawn tens of thousands of shoppers and tourists every weekend for the past 50 years. The firm is focusing on smaller spaces, such as its new “Market by Macy’s” in Fort Worth, Texas, which is bordered by a steakhouse and a Wells Fargo branch. Vacancy rates for lower-end properties peaked at 11 percent in 2009, while mall vacancy rates remained at barely 5 percent. However, for Macy’s and others, the cost-benefit analysis has proven compelling: in the first quarter of this year, the average yearly rent for shopping complexes was $20.36 per square foot, less than a third of the cost of large city center malls. Vacancies on the Magnificent Mile have more than doubled to over 8%, up from 4% in late 2019. According to industry data provider CoStar, rents have dropped 2.5 percent in the last year to a still-high $62.30. Since US pandemic-related limitations began to lift in the first quarter, according to Alexander Levy, senior consultant at CoStar, shopping centers in suburban locations have fared better than malls in metropolitan areas. Signet (SIG.N), Ethan Allen Interiors (ETH.N), and Express (EXPR.N) are among the retailers that have opened hundreds of stores in suburban communities ranging from San Mateo and Southlake, California, to smaller towns like Westport, Connecticut, and Towson, Maryland. “Right now, we’re seeing a movement to the suburbs,” said Conor Flynn, CEO of Kimco Realty (KIM.N), a U.S. investment trust that owns roughly 400 open-air shopping malls and complexes centered around grocery stores. “I’m cautiously optimistic because the vast majority of what we’ve seen has been sticky.” Click here to see an interactive graphic. NO MORE MALLRATS As a result, some city malls have been converted into mixed-use retail and residential structures. Intu, the owner of Manchester’s Trafford Centre shopping mall, which was placed in receivership last year, announced that they have asked for authorization to utilize the outdoor space for events, food stalls, and an urban beach. Others, such as British Land, an office and mall owner, say they are increasingly focusing on “last mile” logistics to get online goods to customers as quickly as possible. It may be too late for ex-mall goer and Bay Area resident Ian Fagalar: the Hilltop Mall in Richmond, California, which he attended as a child is currently being converted for residential and other uses. He claims that “retail establishments are dropping like flies.” “I now shop 99 percent of the time online.” In Bengaluru, Nivedita Balu and Praveen Paramasivam reported; Patrick Graham wrote; Diane Craft edited. The Thomson Reuters Trust Principles are our standards./nRead More

share this article!