The true story about today’s malls

As 2023 was ending, we gathered our senior management team to review the past year and look forward to the year ahead.

It is a time of analysis, visioning, budgeting, and reflection. We look inward and discuss broader industry issues and trends. Following our discussions, I found it interesting that dire predictions made about the mall’s future prior to the pandemic turned out rather differently than had been supposed. Here are three:

Rising rents, occupancies, and sales in malls. Honestly, ever since I entered the industry in the Eighties, the predominant prediction was “The Death of The Mall.” First, it was big boxes that would hasten its doom, then power centers and lifestyle centers. The pandemic hit, online sales soared, and doomsayers all nodded their heads that it would be the internet that would deal the death blow.

They were wrong. It didn’t happen. People are going to the mall, and new brands and uses are leasing spaces in them. Retailers have become keenly focused on their physical presences for a multitude of reasons. There is little new construction happening. Retail space availability is at 4%, and it’s malls that are often the first-choice locations for expanding retailers, restaurants, and entertainment venues. Our more than 85 properties are experiencing rising rents, increasing occupancies, and improved traffic and sales.

As a private company, Spinoso Real Estate Group (SREG) does not report operating results, per se, but the public REITs that do underscore the strong performance of malls operated by skilled sponsors. Simon Properties recently reported that occupancy (95.8%) and rents have increased significantly versus prior year and are at all-time highs. Macerich, too, reported climbing occupancies and a return to pre-pandemic levels. 

In this year’s first quarter, we at SREG achieved a remarkable 180% increase in new deal square footage compared to last year’s Q1. This growth has translated into a remarkable 155% increase in gross revenue during the same timeframe. Furthermore, our pipeline for new leases and letters of intent under negotiation is at an all-time high. 

Negative changes in e-commerce. Pre-pandemic, headlines predicted a future in which everything would be purchased online and delivered to doors by drones. Amazon Prime promised next day delivery, for free. But we are seeing an opposite trend and narrative growing. Overnight shipping is often not free. Indeed, it’s very expensive. Many products once available on Amazon are no longer available. Damaged products, stolen deliveries, incorrect order fulfilment, and other issues are motivating shoppers to purchase in person. 

The real story that has played out is that of national chains incorporating pick-up of online orders within their stores. Macy’s, Home Depot, Dick’s Sporting Goods, specialty shop retailers, and even food court tenants such as Chick-fil-A have taken up the practice, and SREG works closely with our tenant partners to accommodate and promote this feature. 

Municipalities are more proactive about mall redevelopments. I have had the good fortune to personally lead a multitude of shopping mall redevelopments. Historically, these types of projects--both large and small-- were met with significant resistance from municipalities, communities, and often anchor tenants with approval rights. This situation has changed dramatically. Municipalities are now quite desirous to see “their mall” prosper and are supportive of plans to improve, evolve, and invest in these important community assets.

We are now working on a mall property in Wisconsin where, prior to our involvement, an anchor tenant closed and vacated. The building and the parcel were owned by a third-party that leased it to the former department store. When the department store closed, officials used city resources to purchase the box. They recruited a residential developer to redevelop the box and parcel it into a much-needed quality residential product. We worked with the city and other anchors to develop a new reciprocal easement agreement designed to address the needs of an evolving mall.

As so often happens in our media-drenched society, the mall story line that was set down via hearsay and the media did not come to pass. And well-operated, enclosed centers in viable markets continue to be the main attraction on Main and Main.