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Class-A Mall Valuations Nearly Halved Over Last 5 Years

Even the strongest shopping malls are seeing significant slides in valuation as consumer tastes change and the impact of the coronavirus pandemic continues.

Class-A mall valuations have dropped about 45% since 2016, according to CNBC, citing a new report by Green Street


For a few years after the Great Recession, Class-A retail valuations did well, but that changed around the mid-2010s as most malls suffered declining occupancies. 

Mall owners are suffering as well. Simon Property Group, for instance, the nation's largest retail space landlord — many of whose properties are regional Class-A malls — has seen its stock drop from $139.99 per share a year ago to $96.64 a share as of Wednesday.

Green Street isn't predicting mass closures for the nation's 250 or so Class-A malls (out of about 1,000 total), especially if they add nonretail space to their mix. Class-B and C malls, on the other hand, are at much greater risk of complete obsolescence.

The risk isn't new. Before the pandemic, retail real estate faced hard times as stores closed. Malls were particularly hard hit in the 2010s by the loss of anchors and major inline chains.

The pandemic has pummeled retail fundamentals even more. During Q3 2020, total retail availability rate increased by 20 basis points to 6.6%, CBRE reports, with negative net absorption totaling nearly 15M SF for the quarter, though much of that decline was in the neighborhood, community and strip center segment. 

In any case, the company reports, that represented the largest retail contraction since the beginning of the Great Recession in Q1 2009. Also during the third quarter of 2020, retail construction completions totaled less than 6M SF nationwide, the lowest quarterly total ever recorded by CBRE.

Even though retail sales recovered somewhat during the last half of 2020 as more stores reopened and regional pandemic-related restrictions eased, some retail sectors continued to fare poorly. 

Of particular interest to regional malls is the persistent poor showing by department stores, the traditional anchor of malls since the mid-20th century. The Census Bureau reports that in December 2020, department store sales were down 3.8% for the month and 21.4% compared with December 2019, a typical pattern for a number of years now.

"If you’re in a sector like department stores or specialty or off-price or apparel, you suffered the most in 2020," Moody's Investors Service Vice President and Senior Credit Officer Mickey Chadha told USA Today.

At risk of further closures this year, if not a complete collapse, are JCPenney, which will close another 15 stores by the end of March, Sears and Kmart. On Tuesday, department chain Belk filed for Chapter 11 bankruptcy, though it isn't clear yet how many closures that might entail.

In the face of lost anchors and shifting consumer buying habits, Coresight Research estimated last summer that as many as 25% of the country's roughly 1,000 malls will close over the next three to five years.