Shopping malls move away from shopping to fill wasteland with vacant commercial space
Imagine over 30 King of Prussia shopping malls deserted. This is the space that owners of dilapidated shopping centers must fill by 2022 – more than 90 million square feet. It’s no easy task, with dozens of retail chains already scaling back or closing, and it won’t improve if the new pandemic wave scares shoppers.
So owners court businesses that have little or nothing to do with shopping. Casinos, amusement parks, medical facilities, storage units, hotels, schools, offices and residences are fair game, as even healthy malls are being forced to rethink their game plans for the sake of it. next year and beyond.
“In 2030, you will see that most malls will no longer be considered malls,” said Greg Maloney, general manager of retail sales for the Americas at real estate services company JLL. “They’re going to be considered a mixed-use asset.”
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They might look like the Mall of America outside of Minneapolis, the largest in the United States, whose layout includes Nickelodeon Universe and an aquarium. Or as CBL Properties, based in Chattanooga, Tennessee, owner of about 100 malls and lesser-owned malls, which in August added the 80,000-square-foot Hollywood Casino to a former Sears site in its York Galleria in August. Pennsylvania. It brought industry giant Penn National Gaming Inc. with 500 high-tech slots, two dozen table games, and Barstool Sportsbook.
CBL has reason to believe it might help: A Live! The casino that replaced the former Bon-Ton department store at CBL’s Westmoreland Mall near Pittsburgh in November 2020 delivered double-digit traffic and sales compared to 2019.
This was after CBL went bankrupt in 2020 under the old model, which failed because it relied heavily on department stores such as Bon-Ton and Sears to prevent shoppers from defecting to outlets in line. Hundreds of these anchor points have closed, as have thousands of small retailers amid the pandemic, forcing CBL and at least two other major U.S. shopping mall chains out of business.
The result: Nationwide vacancy rates soared to 7.2% in the second quarter of this year, from 4.9% before the pandemic, according to JLL. For the lowest level Category “C” shopping centers, the vacancy rates were 12.4%. Even with the return of some buyers, shopping center rents have barely moved since the first quarter of last year, rising only 1.3%. It doesn’t help companies like Washington Prime Group and Pennsylvania Real Estate Investment Trust, two other mall chains trying to recover from bankruptcy.
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CBL, which closed its Chapter 11 case in November, has remodeled more than 45 properties since 2015, including placing an Aloft hotel in a property in Chattanooga, a representative said via email. It is considering mixed-use redevelopments, including grocery stores, hotels, multi-family housing, medical care, educational facilities and offices.
Sometimes a store reallocation just doesn’t work, so in early 2020 CBL decided to demolish a former Herberger in Bismarck, North Dakota to make way for a pharmacy and restaurants that included a Five Guys and a Chick-fil-A.
“In both good and bad malls, the best option from a real estate perspective might be to develop apartments,” said Vince Tibone, senior analyst at commercial real estate analysis firm Green Street. But not everyone can get by; converting large spaces requires capital and a lot of time that operators may not have. Many older Sears stores, for example, are still vacant more than three years after that merchant filed for bankruptcy, Tibone said. A complete overhaul could take a decade, according to JLL’s Maloney.
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This is not surprising, given the poor outlook for profits and the reluctance of new tenants to move in. Green Street’s forecast for net operating income growth, even in the best malls, is modest at 2.1% short-term and 1.3% long-term, with negative growth for grade B centers. and C.
“CBL and PREIT occupancy rates have generally been below average for a long time now,” said Lindsay Dutch, analyst at Bloomberg Intelligence. “I expect increasing occupancy rates to remain a challenge for substandard shopping mall portfolios. “
Some landlords have made agreements with tenants, agreeing to take a percentage of the sales instead of a fixed sum. For PREIT, “it kind of worked to our advantage,” Executive Vice President Heather Cromwell said in an interview, as sales are up 17% from 2019.
For about five years, the mall operator has attempted to counter bankruptcies and retail closings by taking over properties from ailing chains, Cromwell said. This included replacing a Sears in Massachusetts with an Aldi and a Burlington Coat Factory.
The bond and stock markets signal skepticism. PREIT shares have only traded briefly above $ 3 since going out of bankruptcy in December 2020 and are now hovering around $ 1.25. Washington Prime, which was bought out by creditor SVPGlobal, saw its senior unsecured bond maturing in 2024 drop to one-third of its value. Washington Prime declined to comment.