Slow Death: Shopping Malls?

By
Real Estate Appraiser with PahRoo Appraisal & Consultancy

 

According to Reis Inc., after a short-lived economic recovery, demand for retail space is falling again. As noted by a senior economist at Reis, consumer spending had remained inconsistent due to the struggling labor market and economy. With the advent of online shopping, malls have continued to be one the hardest hit sectors in retail with strip malls doing the worst. As a result, mall owners and management companies have had to find creative ways to fill these once vibrant shopping centers with customers in the hope of turning them into the profitable ventures they once were otherwise lose the property in foreclosure or divest at a loss.

The shopping mall is changing from what it has traditionally been.  Many larger malls are now becoming what are popularly known as ‘entertainment retail centers’. They are turning into entertainment destinations coupled with shopping. Big name restaurant chains, amusement parks and other facilities that offer activities like ice-skating, bowling, golf, you name it have become the face of the new mall. According to CoStar Group, the amount of mall space being leased by restaurants is at 15.8 percent through August 2012, an increase of over 5 percent in the last six years. Entertainment Retail Centers, a NYSE listed REIT develops such destination entertainment retail centers and has invested over $600 million in this venture.

For the not so big malls, there has emerged an unlikely redeemer. According to the Wall Street Journal, “smaller real-estate companies are snapping them up at discount prices and trying to find ways to pull them out their death spirals”. Mr. James Hull, a managing principal of Hull Storey, explains how one mall in Macon that his company bought is recovering after undergoing renovations which included trimming down in size. He says that though the mall is not expected to be dominant as it once was, it was going to be successful. Since the renovation, the mall’s sales had risen 14.3% to $270 per square foot last year.

In the country, subpar shopping malls generating less than $300 in sales per square foot is growing as consumer habits shift and chain stores close. As large developers dump mall properties, they are being picked up by local operators who only own one or two malls. According to Real Capita, malls with defaulted mortgages were sold for prices amounting to an average of 63% of their mortgage balances.

With time it will be interesting to see what form the mall of the future takes, as consumers recover from the economic crisis and reorganize their spending habits. Will it be the small modest mall or the gigantic entertainment center?

Better yet, are we going to see different tiers of malls that cater to different economic classes?

 

Michael Hobbs, SRA, LEED GA, PahRoo Appraisal & Consultancy

 Twitter @Pahroo

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