‘Those Malls Are Going To Have To Die’: It’s (Re)Make Or Break Time For Retail Owners
It is becoming increasingly clear which shopping malls can be repurposed and have a viable future and which are heading for extinction.
The key differentiating factors? The ability to take control of big-box department store spaces, the ability to open up closed malls and blending the physical space of the mall with e-commerce.
“There are those with a path to redevelopment without violating co-tenancy agreements, and for those there are capital,” JLL Senior Managing Director Chris Drew said at the National Association of Real Estate Editors annual conference in Miami last week.
Drew said it is key for existing owners or new buyers to be able to take control of their anchor store spaces — and the parking lots connected to them — without violating co-tenancy agreements other retailers may have, which prohibit that tenant leaving or the use of the space changing.
If that can be achieved, then uses like multifamily, hotels and offices can sprout from those large boxes, or be developed on those large parking lots. If not, it could be curtains.
“There are the malls where you don’t have control of those boxes, or the underutilized portions of the space, and those are going to have to die," Drew said. "They are going to have to die, and for some owners, it is going to get worse before it gets better.”
Drew said that in the last few months, he has seen an uptick in inquiries from new buyers for well-located retail assets, who were in part looking at the sector because capitalization rates in asset classes like industrial and multifamily are so low at the moment.
As for what makes a successful repurposing, it is not just about adding a mix of uses, said Alex Lopatynsky, Cooper Carry principal and managing director.
“It’s about taking places that used to be inward-focused and opening them back up to the community, creating a town center,” Lopatynsky said. “There are a lot of levers you can pull."
She pointed to the example of Ballston Quarter in Arlington, Virginia, where Forest City (then Brookfield after it bought the Cleveland-based real estate firm) spent $330M redeveloping Ballston Common Mall, built in 1951, a project that Cooper Carry designed.
“We pulled the roof and the whole side of the mall off to create a plaza and create that community space,” she said.
More food and beverage outlets were added, but Lopatynsky said creating a community asset was about more than just opening out the physical space or adding a food court.
“It’s about the programming of events,” she said. “Can you create a movie night for residents in a parking area that’s not being used to bring people in?”
The decline of physical retail spaces like shopping malls is linked to the rise of e-commerce and online delivery, and in order to thrive in future, Drew and Lopatynsky said malls are going to have to be able to blend the two. That doesn’t just mean picking retailers with a strong online and physical presence.
“It’s about providing the infrastructure that allows people to have the best experience from malls,” Reef Technology co-founder and Senior Vice President of Product Philippe Saint-Just said.
Reef started out as a parking firm, but it has evolved into a company that converts assets like parking or retail real estate into space to facilitate deliveries — although it hasn't been a smooth evolution.
“For a while now, malls have been overcompensating by [adding] more and more F&B, but I think it is combining the experience in the mall with the ability to have something delivered to your home,” Saint-Just said.
Reef has been working on projects in malls where customers can order goods online and collect them from a centralized space, or where customers could buy goods at the mall and have them delivered to their home. Ghost kitchens, and creating centralized spaces from which food deliveries can be co-ordinated, are another example.
“It’s about making sure the two worlds interact seamlessly,” Lopatynsky said.