8/8/17

Why Are New Malls Being Built During Of A Retail Apocalypse?

With a record number of recent retail bankruptcies, and national waves of store closings, how is it that there are more malls being built or expanded? Construction on shopping centers and even on enclosed malls is at its highest level since the summer of 2008. Are real estate developers in denial?

No, they’re not. It’s just that in-person retail isn’t quite dead yet, and people and development have shifted to new parts of the country. They need shopping centers to come with them. Meanwhile, investors hope to squeeze more life out of the malls they still have, and that means renovations.

Bloomberg News reports that builders spent $1.6 billion nationwide in June 2017 on shopping center projects. Even spending on enclosed malls is up. Why?

One possible reason is that mall developers are following customers, and building closer to urban centers instead of new exurban outlet malls. Land, labor, and materials all cost more in more densely populated areas, which is driving construction costs up even as builders aren’t really on a mall-making frenzy.

Another reason, which we’ve discussed on the site before, is that mall owners want us (shoppers) back. Some of that construction spending is on renovations meant to draw shoppers to do things other than shop.

“The experiential aspects of retailing and the provision of services that cannot be replicated through online sales, e.g. a dinner out, are driving investment in mall repositioning,” Sam Chandan of Chandan Economics, a real estate analytics firm, told Bloomberg News.

Changes to support that way of looking at malls could be making an old department store space appealing for three restaurants and a rock-climbing gym, or just updating d├ęcor.

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