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Retail REIT Simon Property Group posted modest increases in its income, occupancy and rent prices last year, and it is looking to keep that momentum going by revamping more of its malls, CoStar reports.
The mall giant finished up 13 redevelopment projects last year and is planning to spend $800M doing five to six more big projects in 2024, CEO and Chairman David Simon said during an earnings call on Monday.
Redevelopments are going to kick off on shopping malls in Orange County, California, Boston, Ann Arbor, Michigan, Seattle and Long Island, New York, the CEO said. Funding will come from the $1.5B in cash flow Simon posts after dividend payments.
Simon pointed to Phipps Plaza in Atlanta as an example of a successful retrofit. Since redevelopment, the mall boasts a Nobu Hotel and restaurant, 340K SF of office space and a Life Time fitness center.
Mall renovations and retrofits are growing in popularity as owners try to adapt to the ever-changing habits of consumers while avoiding the headache of new builds, such as rising interest rates and supply chain disruptions from attacks in the Red Sea. Nationwide, new mall construction dropped 40% to 55.2M SF last year.
Simon had a strong 2023 on multiple fronts. It reported a record $4.7B in annual funds and ended the year with a net operating income that surpassed pre-pandemic levels. It executed over 18M SF of leases in 2023, and lease income rose about 6%. Occupancy in its malls was 95.8% at the end of 2023, a slight bump from the previous year's 94.9%.
Simon said vacant big-box space is a rarity in its owned portfolio.
"The ones that we own we basically don't have a ton of work to do. ... The actual stores that we own are not many, probably under 10 at this point, that are either currently under construction or in process," he said.
Transformco and Seritage still own some Sears stores in Simon properties that the mall REIT could purchase and redevelop down the road if pricing comes down, Simon said.
U.S. retail vacancy reached its lowest level since 2005 in October at 4.8%, and that trend continued to close out the year. Asking rents have ticked up as space has tightened. Average rents in the fourth quarter were $23.73 per SF, up 4.1% from the previous year, according to Cushman & Wakefield.
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