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Against all the odds, malls are thriving again

Against all the odds, malls are thriving again

by  Phil Wahba
March 30, 2015
Fortune Magazine


Malls saw their highest occupancy rates in decades last year, but that’s because many weak ones are closing.

So much for the death of the U.S. mall.

For all the media stories of reeling malls with weeds growing through parking lot pavement cracks, new data show that the closing of the weakest ones and an uptick in retail sales have the sector thriving again.

The occupancy rates of U.S. malls hit 94.2% at the end of 2014, their highest level in 27 years, according to the International Council of Shopping Centers.

What’s more, base rents rose more than 17.2% last year, according to the industry group. That’s consistent with the strong 2014 financial results of top mall owners such as Simon Property Group  SPG -0.68%  and General Growth Property  GGP -1.43% .

“The 2014 data paint a very strong picture of the shopping center industry for the year ahead, and are especially promising in the mall segment,” said ICSC spokesperson Jesse Tron. (Shopping centers also saw sharper occupancy and sales per square foot.)

Indeed, the National Retail Federation expects shoppers to ramp up spending by 4.1% this year, the fastest clip since 2011 and a boon for malls and their tenants. And mall stalwarts such as J.C. Penney  JCP 7.41%  and Macy’s  M 0.73%  have forecast sales increases this year.

At the same time, this encouraging data also reflect the shakeout that was years in coming. After a huge two-decade boom in construction that led to 1,500 malls by the time the recession came around, the long awaited contraction has begun. Green Street Advisors estimates some 300 malls, primarily weak malls, will eventually disappear. And Penney and fellow ailing department store operator Sears Holdings  SHLD -2.57%  continue to close stores, depriving many malls of their anchor tenant, and leaving more and more malls vulnerable.

That scarcity will push up rent and sales per square foot to remaining malls: last year, sales per square foot hit $475 — they were $383 only five years earlier.

The boon will be more pronounced at higher-end malls, which are thriving, helped in part by the likes of Nordstrom  JWN 0.37%  and Neiman Marcus pushing back successfully against  AMZN -0.66% by combining e-commerce and brick-and-mortar stores, and by using tech to improve in-store service and experience.

Indeed, as Green Street told Fortune this winter, struggling malls will continue to fall behind this year and for the foreseeable future.

he chasm between sales per square foot — retail’s most important metric —between so called “A” malls, the very best, and the “B,” “C,” or “D” malls, keeps growing and will continue to increase. Sales per square foot among mall real estate investment trusts, which tend to own better malls, are up 36% since 2010, according to Green Street. And that has a lot to do with paring poor locations in recent years and because of the introduction of more productive tenants, such as Apple  AAPL -1.56% .

At A++ malls (one such mall is Long Island’s Roosevelt Field, anchored by a Nordstrom, a Penney, a Bloomingdale’s, a Macy’s, and soon a Neiman Marcus), sales rose to $945 from $900 per square foot in 2013 versus a year earlier (full 2014 data are not yet available), and rose at A malls by $20. But at B and C malls, many of which are grappling with the closings of a Sears or a Penney, or a tenant such as Aeropostale, sales are declining, setting off a self-perpetuating trend that is hard to break.

“It’s circular,” D.J. Busch, a senior analyst at Green Street told Fortune. “As a mall gets more productive, it is more in demand from new, growing retailers, so it’s a virtuous cycle. Conversely, for lower B or C malls, as they lose tenants, it’s harder to find quality replacements.”


Wahba, P. (30, March 2015). Against all the odds, malls are thriving again, Fortune (April 1, 2015)