Innovation Brings New Life to Malls
Alarmist headlines often claim that the mall—a cornerstone of American retail—is dead. Our experts make the case that mall real estate still is valuable. Instead of acquiescing, landlords should be looking for ways to innovate and reinvigorate.
Changing the Tenant Mix
It is becoming increasingly evident that the old model for mall success is on life support. Our US MarketFlash “What’s Wrong with American Shopping Malls?” highlights an obvious problem: Most malls’ tenant mix no longer matches consumer demands. On average, department stores occupy nearly 50 percent of the gross leasable area in US shopping malls, with apparel and accessories stores occupying another 29 percent. Those are two of the slowest growing categories in retail today, as opposed to growing sectors like restaurants, health and beauty. Landlords are taking note and are beginning to adjust. Neill Kelly, SVP Occupier Restructuring and Disposition Services, has seen restaurants and entertainment concepts—like bowling allies and trampoline parks—start to take residence in large mall anchor spaces.
While retail is still the most sought after category for a mall, adaptive reuse is becoming more common. Once the retail opportunities in a mall are exhausted, landlords are beginning to consider other purposes: office space, residential units, storage, hotels and, eventually, e-commerce fulfillment centers. Some of the anchors require a significant investment, but the new uses are also traffic drivers and can often serve the rest of the retail space well.
Another experimental trend in malls is repurposing space to suit one common theme. For example, a struggling mall might opt to focus on health, transforming anchor spaces into exercise facilities or alternative gym formats and then tailor the rest of the tenant mix to serve this consumer base. Another option in this category is healthcare. To meet an increasing demand for healthcare facilities, some investors are switching gears with their malls, filling space with doctor or hospital groups that have high square footage needs for their campuses. Accompanying retail targeted at these consumers can then fill out in-line spaces where needed.
CBRE Research’s US MarketFlash “Last Mile: Concept or Measurement” analyzed the largest 15 metro areas in the US to determine the actual distance of what is now known as last-mile delivery, discovering that distances range from six to nine miles. Infrastructure development for this increasingly important sector of the supply chain still is developing, with some markets seeing shorter and shorter distances for delivery. As this type of fulfilment need increases, malls are likely to get noticed for their valuable proximity to the consumer.
Given changes in consumer demand and the advent of omnichannel retail, American malls must find ways to bring the traditional mall merchandise mix in line with evolving customer needs. In many cases, this requires a move away from overreliance on apparel and department stores and towards higher-growth categories including entertainment, healthcare and service-oriented tenants. However, each property and its trade area are unique, and owners will need to carefully assess the needs of its customer base to determine the best and most sustainable retail mix.
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