Americans still go to malls, but they aren’t shopping as much as they used to. Mall landlords have been able to replace vacancies left by failing stores with everything from restaurants to supermarkets to rock climbing gyms. While these new tenants might be paying higher rents, this transition is coming at a significant cost to mall owners.
Bloomberg Technology reports that improvements to stores and common spaces in malls that are meant to draw new tenants also means that malls have to update their buildings and amenities to draw the best stores, which in turn should draw the best customers. Or maybe it’s the other way around.
“The math is pretty obvious, pretty compelling, but there are risks,” one analyst in the industry told Bloomberg Technology. “[Remodeling] hasn’t been done before on a broad scale.”
Still, there’s money in taking over old department stores, which received breaks on rent because they were anchors that drew shoppers to visit the interior stores of a mall. Now shoppers are more interested in the stores inside the mall or in subdivided former department store buildings.
“We’ve actually made a very, very big statement by saying that over the next five years, we hope to recapture another 100 department stores,” the CEO of GGP said at a recent conference.
That’s a polite way of saying that department stores in its mall portfolio have closed or are planning to close soon, and GGP is taking that as an opportunity to redevelop the mall
Take Sears, for example: Suburban malls were built around Sears stores, with the company’s Homart Development subsidiary developing malls across the country so it could put Sears stores in them.
Seritage Growth Properties, the real estate investment trust that has taken over a number of Sears stores, has found that kicking Sears out when a new tenant comes along can earn the company at least four times the rent it was receiving before.
“If Sears shuts down, you need to reinvent that part of the mall,” an analyst in the industry from Green Street Advisors told Bloomberg. The problem is that you can’t link spending on décor or fancy furniture for resting areas, or higher quality elevators directly to an increase in consumer spending.
They’re all part of investing in the building to bring in tenants and shoppers: It’s just that paying for a commercial kitchen for a restaurant or remodeling a store for a popular new tenant is a more direct line.