What to do about America's dying malls?

17 June 2020

The retail shopping industry has been one of the most impacted commercial real estate sectors in the last 10 years. Due to a multitude of factors including the rise of online shopping, changing demographics and fierce competition, retail across the country has been on the decline.

One of the most observable effects of this evolution is the decline of the American mall. A 2017 Credit Suisse report expects 20-25% of US malls to close by 2022, a percentage that is likely to increase as a result of the global Covid-19 pandemic.

This trend is forcing mall owners and municipalities across the country to consider their options. The mall is a cornerstone of many small to mid-size municipal economies across the country. The lucrative tax on malls helps to power city projects and benefit programs and the threat of the forthcoming loss of this income leads owners and cities to look for solutions together.

The majority of mall re-platforming falls into two types, renovation and redevelopment. According to JLL, most mall renovations fall into 4 categories:

  • Food and fun: improve or add new food and beverage and entertainment options
  • Community connections: change the way malls serve their communities by converting the space into lifestyle and power center-like projects, adding non-retail uses to create mixed-use projects, dedicating space for community use or designing new open spaces
  • Facelifts re-brand to make malls more marketable through common area improvements, tenant upgrades, and even name changes
  • New uses: partially or completely convert to other non-retail uses

In some cases, renovations are not enough. More mall owners are implementing a hybrid model with multiple redevelopments and renovations happening at once. By combining demolition of some or all existing structures with new or upgraded structures, owners can feature new entertainment options, such as restaurants and theaters in tandem with multifamily residential units. Additionally, repurposing a portion of parking lots or outlots for open space and public parks has proven to be a popular method.

Take for instance the Cinderella City Mall in Englewood Colorado. This 1.5 million-square-foot mall became popular shortly after its opening and was known for being the largest mall west of the Mississippi. But by 1997, the mall was forced to close its doors when the last major retailer closed up shop. Now, rebranded as City Center Englewood, the 55-acre site boasts a mixed-use development which includes a light rail station, city government offices, residential units, a library, other various retail, and even an art museum.

This type of extensive redevelopment and renovation is one of the most popular potential solutions being considered by mall owners across the country. However, this strategy requires a lot of heavy lifting. Big changes like these require significant investment and for many already strapped entities this may not be a realistic option.

For some, it is necessary to limit the amount of new construction and to keep the majority of changes within the existing structure. This has resulted in some rather creative solutions like the repurposing of malls into large, single or multi-tenant offices, call centers or indoor athletic facilities. Other malls lean on novelty more than others, take for example The Arcade Providence. Located in the center of downtown Providence, Rhode Island and built in 1828, the mall is the oldest indoor mall in the United States. Like many others, in recent years the mall was struggling and forced to consider changes. Ownership converted the mall into a mixed-use development but did not demolish any of the existing mall structure. Now, the mall is home to 48 micro-loft apartments on the upper two floors and on the first floor; small business retail, including a full-service restaurant, coffee shop and whiskey bar, casual dining, and several unique retail shops.

The other potential solution that, taken in the context of the likely impacts of Covid-19 on retail, may become more popular is to demolish existing structures and start from scratch. Recent bankruptcies and reductions amongst the nation’s largest department stores is a hard blow to traditional mall models that rely on these brands as anchor tenants and in most cases make-up the ownership of the mall entity. As resources become more and more limited, the most plausible way forward may be to bulldoze and start from scratch. The structures that replace them will heavily depend on the location of these tear downs. For instance, in the Seattle-area there are a combined 619 acres of land along the light rail which is owned by closed or distressed malls. Many have the opinion that demolishing these structures and utilizing the land for new affordable housing is the best use for a region with some of the greatest affordable housing challenges in the country.

While the format may change from one mall to the next, across the board, many malls will be forced to consider large scale changes in order to survive a changing market. Like many other CRE projects, when redeveloping a mall, it is important to take the existing context into consideration. “Ensuring that community goals are met and that the strengths of the existing structure are at the forefront of the design will result in an ultimately stronger final product,” says Senior Vice President, Development, Justin Pelej. “Through quality design focused on enhancing community, the Focus team has historically achieved more for our partner communities, stakeholders and investors.

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