WHY MALL REUSE IS JUST BEGINNING
JUNE 2017 WHY MALL REUSE IS JUST BEGINNING
A current retail storyline is that the days of regional malls are numbered. The assumptions underlying this narrative are that all purchases are moving online, retailers are going bankrupt, and millennials have rejected the suburban mall and the lifestyle it represents. While there is some truth to each of these assumptions, statistics on malls tell a somewhat different story. Furthermore, when malls are reconsidered and repurposed for other uses, their value may far exceed their use as conventional retail space.
In traditional terms, the regional mall is Despite the growing number of stories that defined as a complex containing a group of focus on malls’ demise, regional malls have retailers with interconnected walkways, either had positive net absorption since 2010 (the interior or exterior, and parking for patrons. only blip in absorption was in 2009 at the Malls began to compete with “Main Street” height of the recession). At the end of 2016, in the middle of the 20th century and grew occupancy across the U.S. was 95%, equating in popularity as the population migrated to 848 million square feet of space. Store from the cities to the suburbs. Through the closures have increased, but for the most part, When malls are decades, malls have faced both periods malls have rolled with the punches, finding of enormous success as well as a variety of new tenants or alternative uses. reconsidered and social and economic challenges. repurposed for other uses, their value may RETAIL REAL ESTATE TOTAL INVESTMENT SALES VOLUME Vacancy Rate vs. Net Absorption | 2007-2016 far exceed their use as $18B 8.0% 250M $16B conventional retail space. $14B 7.0% 200M N E E
T $12B T
A B R A
6.0% 150M
S $10B Y O C R P
N $8B A T C 5.0% 100M I O
A $6B N V $4B 4.0% 50M $2B
3.0% 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Costar Source: CoStar
2 A LOOK INTO THE FUTURE Will we really buy everything online?
In 2016, Amazon’s sales in North America Brick-and-mortar retailers have some increased 25.2% over the previous year. advantages in their fight against pure-play In the same 12-month period, 53% of all e-commerce. Most notable is the physical store growth in online sales came from Amazon. network. The consumer’s ability to interact with Based on numbers like these, it’s no wonder the physical store for browsing, purchasing some predict all spending will eventually be or returning goods gives the retailer more Most purchases through Amazon. opportunity to capture that consumer’s will still be attention and, ultimately, their spending. However, notwithstanding Amazon’s Brick-and-mortar may not always compete as made offline for incredible success and the growing adoption effectively on price, but it often can compete of e-commerce among shoppers of all ages, the indefinite on convenience. For a regional mall that is near most purchases are still made offline, and will future. the consumer, e-commerce growth, in fact, be into the indefinite future. may drive consumers into the mall to make a
According to the International Council of purchase. Shopping Centers, of the $4.7 trillion in retail RETAIL SPENDING spending in 2015, only 8.3% of that spending Total Retail Sales E-commerce Sales E-commerce Sales as % of Total happened online. Breaking out the online $7M 9.0% E
$6M 8.0% C
portion, only 3.3% of spending was transacted O M M
with “pure-play” online retailers. These are E
$5M 7.0% R C MILLIONS) ( E
retailers like Amazon that have little to no S G A I N
$4M 6.0% L E D
physical store presence. That means 96.7% of S N
( E % P
S 2015’s retail spending happened in brick-and- $3M 5.0% O I L F
A S T P
mortar stores, or with e-commerce affiliated E R E $2M 4.0% N L D A I N
with brick-and-mortar stores. T G) O T $1M 3.0%
0 2.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ICSC
3 Are retailers everywhere really going out of business?
The news is littered with reports of large retail closings nationwide. Averaging 130,000 stores closing locations or going bankrupt. square feet each, these dark boxes will add And the reality is, the number of store 32.4 million square feet of vacant space to the closures is reaching a level unseen since the retail market in 2017. Because big box spaces depths of the Great Recession in 2009. Since are the most difficult to fill, most of these dark the beginning of 2017, major retail chains department stores will have to be subdivided have announced plans to shutter over 3,500 or repurposed. stores nationally. This accounts for more than However, when comparing the volume of 62 million square feet, or 0.6% of all retail square footage resulting from store closures real estate across the country — a significant with overall net absorption, the picture is amount of space to go dark in the span of not entirely dismal. In 2016, the U.S. retail four months. Credit Suisse predicts that up to market experienced 105 million square feet 8,600 brick-and-mortar stores will close their of net absorption, representing a growth in doors in 2017. occupancy of nearly 1%. In addition, mall Store closures are by far the biggest productivity has remained steady and rose Because big box spaces contributor to increased vacancy. In first 0.7% in the last year to $465 per square foot, are the most difficult to quarter 2017, Sears, J.C. Penney and Macy’s according to the International Council of fill, most of these dark accounted for approximately 248 store Shopping Centers. department stores will have to be subdivided RETAIL STORE CLOSURES ANNOUNCED IN 2017 or repurposed. 552
400
250 240
171 170 160 138 120 110 108 88 70 70 68 60 60 42 30 RADIO PAYLESS THE FAMILY WET BEBE CROCS JCPENNEY BCBG AMERICAN KMART HHGREGG CVS STAPLES MACY'S GUESS ABER SEARS GANDER SHACK LIMITED CHRISTIAN SEAL APPAREL CROMBIE MOUNTAIN & FITCH Source: Transwestern 4 Do millennials really avoid malls?
Millennials are not attracted to malls the be increasingly settling down, buying homes, same way their parents and grandparents having children and doing activities that lead were in their prime shopping years. As a to the acquisition of goods. This trend will result, location will influence the ongoing likely accelerate as millennials move toward or potential success for regional malls, with peak earning years and begin to inherit some physical factors such as access, transportation of the wealth accumulated by their baby and co-tenancy remaining important. boomer parents. However, amidst a moving and aging For all the attention on urban living, many population, demographics will ultimately play millennials will follow a similar path as past the biggest role in the success — and even generations and make the migration to survival — of many regional malls. suburban America. This migration will happen partly by choice, as not everyone favors the U.S. Regional Mall Demographics urban lifestyle, and also by necessity, as city life LOW VACANCY HIGH VACANCY is exciting but often prohibitively expensive. MALL MALL <5% >10% As millennial migration has reinvigorated many Average Age 37 41 urban neighborhoods, that same energy will Median Household $59,884 $51,498 move to the suburbs, which are not stagnant, Income Total Population 209,748 176,562 but rather constantly evolving places that will Source: Transwestern, CoStar become denser, more diverse and offer more amenities over time. Many regional malls will Today, malls with the highest levels of adapt to the ongoing change in their trade occupancy are in areas where the population is areas. In fact, in a number of markets, this is Many regional malls growing and, more specifically, the millennial already happening as owners get in front of will adapt to the population is growing. The millennial the demographic shift. generation (those born roughly 1980-2000 ongoing change in and now in their late teens to mid-30s) is the their trade areas. group that is stepping up its spending. As they age, this is also the generation that will
5 LESS RETAIL, MORE IMAGINATION
While the future is not doom and gloom, That said, the successful regional mall does the fact remains that there is too much retail look different and will continue to evolve. space in the U.S. today. CoStar estimates From a design perspective, it is less often that approximately 1 billion square feet of an enclosed hallway and more frequently an physical retail space, or 1% of the total retail open space that brings in natural light and space, will disappear within the next decade. has pedestrian walkways. More importantly, it also is not a place devoted solely to retail. Other types of However, in this changing environment, the Other types of real estate users are finding the real estate users regional mall still has a role as community advantages of regional malls too good to pass center and gathering spot in suburban are finding the up — namely, they are located conveniently America — a place to meet, shop, dine advantages of to consumers, have ample parking and often and be entertained. Because even with the have large space blocks that are unavailable regional malls too urban rebirth happening in many cities, the in other venues. good to pass up. fastest-growing areas across the country are largely suburban. The regional mall is increasingly attracting office, medical and community users. Malls TOTAL RETAIL CONSTRUCTION are also seeing their parking redeveloped 25 MSF into multifamily, office buildings and hotels, among other uses. Of course, the success 20 MSF of these projects depends greatly on the
15 MSF underlying demographic research and financial analysis that drives conversion to 10 MSF other uses. But one thing is certain: The regional mall, far from being extinct, is 5 MSF evolving into a new type of gathering place 0 that meets the needs of its community. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: CoStar
6 A PLACE FOR LEARNING developed asmultifamilyhousing. not usedbythecollegeisexpected tobe A short walkfrom theMetrorail station, space open spacestofostercollaborative learning. attracted to the central location withlarge tech economy. The communitycollegewas foster in-demandjobskillsinthecity’s vibrant facility toaidtechnologyeducation and a library, mediacenter, andan ACCelerator first phasein2014featuring classrooms, labs, College’s HighlandCampus. ACC openedits closed tomake wayfor Austin Community out inthesuburbs. As aresult, themall had beengobbledupbynewermallsfarther vacancy andincreased blight. Market share Mall wasindeclinefordecadeswithgrowing Austin’s firstsuburban regional mall, Highland traditional highschoolsforat-risk students. and spacewithinSimonmalls tohost30non- works withlocalschooldistricts, providing funding LOCATIONS NATIONALLY SIMON YOUTHACADEMIES AUSTIN, TEXAS HIGHLAND MALL Simon Property Group formedanonprofit that Owned by Austin Community College 1971 Built 575,000 square feet
Virginia Techstudents. Mall LLC isbeing usedasacomputerlabtoteach this 174,000-square-foot mallownedbyUniversity BLACKSBURG, VIRGINIA UNIVERSITY MALL VIRGINIA TECH MATH EMPORIUM/ A former60,000-square-foot department store in
7 GATEWAY TOWN CENTER JACKSONVILLE, FLORIDA 607,340 square feet Built 1959
Owned by Gator Investments
This struggling regional mall had a number of advantages to a potential medical user, including convenience to consumers and ample parking. The University of Florida saw the opportunity and, in 2011, dedicated the 100,000-square-foot Elizabeth G. Means Medical Pavilion. The mall will host an expanded portfolio of medical and community services that will be geared toward the historically underserved community.
ONE HUNDRED OAKS MEDICAL MALL FIESTA MALL/THE CAMPUS NASHVILLE, TENNESSEE MESA, ARIZONA Vanderbilt University Medical Center occupies the Although some retail will remain in this 1.2 entire second floor and roughly half of the square million-square-foot mall owned by Dimension footage of this 850,000-square-foot property Financial & Realty Investments Inc., the majority owned by LaSalle Investment Management. of space will be redeveloped for healthcare and educational use. HEALTHCARE A PLACE FOR FOR PLACE A 8 A PLACE FOR ENTERTAINMENT space withoffice, retail andapartments. redevelopment integrates entertainment and open PLANTATION, FLORIDA PLANTATION WALK trampoline park. an expanded movietheater andanindoor entertainment center, anindoorplayground, with anindoorgo-kart track, abowlingand Shore intoanentertainment destination from aregionalitself mallonBoston’s South anchored KingstonCollection transformed likely toshop. In2013, theMacy’s and Target- center, andoncethey’re in, theyare more is anideal waytodraw customersintoa shipped by Amazon: services. Entertainment more mallsare focusingonwhat can’tbe e-commerce tofilltheirneedforgoods, As more consumersare turningto KINGSTON, MASSACHUSETTS INDEPENDENCE MALL KINGSTON COLLECTION/ Encore Capital Management’s 32-acre, mixed-use Owned byPyramid ManagementGroup 1989 Built 859,373 square feet
dark minigolf. amusement park, go-kart track andglow-in-the- Pyramid ManagementGroup includesanindoor one, this2.6 million-square-foot asset ownedby SYRACUSE,NEW YORK DESTINY USA An entertainment venueandmallmerged into 9 A PLACE FOR WORKING space, atech incubator and ahotel. 782,000-square-foot malltomake wayforoffice DALLAS, TEXAS RED BIRD/SOUTHWEST CENTERMALL result of theincreaseresult of indaytimepopulation. project hasattracted newretail tothearea asa will expand intomore spaceasneeded. The footprint withover3,700employeesand theformermall’s of occupies more thanhalf workplace knownas“TheCastle.” Rackspace create anexciting andenvironmentally friendly renovationsover $100millioninaseriesof to The cloud-hostingtechnologyfirmspent in 2007foritsnewcorporate headquarters. purchased bySan Antonio-based Rackspace Having sat vacantsince2005, theproperty was another retail property heading fortheend. shelter, the Windsor Park Malllooked like space andatemporary stintasahurricane After three decadesasseldom-successfulretail SAN ANTONIO,SAN TEXAS WINDSOR PARK MALL/THECASTLE HBC Investmentsisdemolishing this Owned byRackspace Built 1976 1.2 millionsquare feet
space, office. including 425,000square feet of CityCentre, mixed-use 1.8millionsquare feetof mall near thevibrant Energy Corridor with HOUSTON, TEXAS CITYCENTRE Midway Companies replaced anagingregional 10 A PLACE FOR LIVING also willfeature 1,400newmultifamilyunits. Franconia-Springfield METROstation. The project the intersection andwithinwalkingdistanceof development tobeconstructednear amajor aplannedtransit-orientedfeet willbepart of office buildingstotalingnearly 800,000square anchors J.C. Penney, Macy’s and Target. Two new led themallto100%occupancy, including and agourmetfoodcourt. The investmenthas and addingahealth club, newmovietheaters renovation in2014, reworking thetenantmix uses. PREIT its completedthefirstphaseof property todevelopnewbuildingsforvarious residential space, utilizingsurpluslandonthe commercial3 millionsquare and feetof in renovations approximately andtheadditionof PREIT isreinvigorating thismallwith$250million SPRINGFIELD, VIRGINIA CENTERSPRINGFIELD TOWN and entertainment venues. include residential units, plusoutdoor space, dining Companies/Rouse Properties will be redeveloped to EATONTOWN,NEW JERSEY THE HEIGHTS AT MONMOUTH/MONMOUTHMALL This 1.5million-square-foot mallownedbyKushner Investment Trust(PREIT) Owned byPennsylvania Real Estate Built 1973, renovated 2014 1.4 millionsquare feet
feet of office andtwo hotels. feet of units, retail, 244,000square feetof 629,000square mixed-use developmentwith1,432 multifamily WOODLAND HILLS, CALIFORNIA WESTFIELD PROMENADE Westfield willtransform thismallinto a vibrant 11 WE’RE HERE TO ASSIST Transwestern advises clients on real estate strategy, lease-up and disposition of commercial assets, property and project management, portfolio strategy, debt and equity financing, and development.
TRANSWESTERN RESEARCH In markets across the country, Transwestern research professionals produce sophisticated data analyses, local market reports and insight on national trends that help clients make informed real estate decisions.
AUTHOR Brian Landes Director of GIS/Location Intelligence [email protected]
ADDITIONAL CONTRIBUTORS Chase Bourdelaise, Matthew Dolly, Yesenia Dominguez, Karen Judson, Darrell Magnuson, Sandy McDonald, Elizabeth Norton, Keith Pierce, Michael Soto
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