What’s Happening to Shopping Mall Real Estate?

woman walking up an escalator in a mall
What is the future of in-person retail?

Shopping malls aren’t what they used to be. We live in a time where temperature checks and rapid COVID tests are now a part of our everyday, which signals a huge hurdle for retail shopping. With the rise of pop-up shops and online shopping, are shopping malls even necessary anymore?

Many will say no, like one photographer who traveled across the country, shooting the abandoned ghost malls from Chicago to Los Angeles, and beyond, long after they’ve shuttered. It signals a shift: will the decline of in-person American consumerism continue to dwindle? And if so, what happens to the malls?

The Amazon Effect

workers working at an Amazon fulfillment warehouse
Some malls are being turned into Amazon Fulfillment centers instead.

Just recently, Amazon has snapped up closed shopping malls and is turning them into “fulfillment centers,” meaning that the shopping malls that suffered during the pandemic have been turned into distribution centers where products are stored and shipped locally for their Prime Delivery service. Since the pandemic started, Amazon has made $116B more in profits.

In Baton Rouge, Louisiana, Amazon bought the Cortana Mall for $17M. It is being demolished throughout this summer. Then construction will resume to build the new Amazon distribution center, which will be over 3.5 million square feet.

Next up, the Greendale Mall in Worcester, Massachusetts is set to be turned into a 121,000-square-foot distribution center for Amazon, and they’re currently in talks with bankrupt department stores, including JCPenney and Sears, to turn them into distribution centers. Retail industry expert Vince Tibone, an analyst with Green Street, recently said the cash flow at malls is in rapid decline and predicts that 50% of shopping malls will close before the end of this year.

Don’t Count Malls Out Yet

Not all malls are being demolished by Amazon. Like some hotels are being turned into affordable housing, some malls are being reused for other purposes. The Lakes Mall in Fruitport Township, Michigan is turning its former anchor department stores (Sears and Younkers) into hotels and grocery stores, according to Mike Murray, senior vice president at Advantage Commercial Real Estate Services.

According to one report, malls are alive and well, and they weren’t destroyed by COVID-19, despite brick-and-mortar businesses suffering a great deal. Retail shops in malls doubled in sales this year, compared to 2020. This statistic shows a recovery. Research firm IMI International even predicted that 40% of Americans will return to mall shopping.

Some malls have high vacancy rates, reaching 11.4% vacancy rate in the first quarter of 2021 (up roughly 1% from 2020). Yet, shoppers have turned online for their shopping fix, with suburban malls in a steady decline. Among the titanic companies that filed for bankruptcy were JC Penney and Neiman Marcus, among others. IBS predicts that over 80,000 stores across the US will close before 2026.

Will malls really close? Some say that 9% of malls will close over the next five years. Clearly, this is part of the “brick and mortar to click and order” revolution, as everything — from beauty products to groceries — are being ordered online. With the pandemic keeping everyone at home, there has been a rise in sales of casualwear clothing (jogging pants), grocery orders and home workout equipment (weights). Over 20,000 stores are expected to close by 2026.

Will Mall Real Estate Move to Mixed-Use?

Maybe the future of malls is mixed-use properties that combine businesses and residencies? Though it can be a lengthy process to rezone properties from purely commercial to mixed-use, the Paradise Valley Mall in Phoenix is already on it. The mall closed its doors earlier this year, and now the 92-acre property is being turned into a mixed-use space, including a grocery store, multi-family residencies, office spaces, retail and restaurants. This report comes from Macerich, a real estate investment company, who sold the property to the realty firm RED Development.

As part of their redevelopment, they’re planning to create 3.25 million square feet of non-residential uses alongside 3.25 million square feet of residential use, which is roughly 2,500 multi-family living units. Over the next few months, the center will remain closed as the former department stores are redeveloped.

In a statement, Macerich President Ed Coppola said, “As the retail landscape continues to evolve here in Arizona and around the country, our decision to realize the market value of this non-core asset makes sense for us.”

“Traditional malls are a 1970s and ’80s phenomenon and targeted towards a different generation. That model worked then, but many things have changed now — including customers’ profile, demographics, customer preferences, channels of sale and technology,” Hitendra Chaturvedi, a professor of practice in Arizona State University’s W. P. Carey School of Business, said in a recent interview.

The Future of In-Person Retail

The death of the strip mall doesn’t mean we won’t peruse boutiques ever again. Retail shops will likely still thrive in airports. As locations where people must go through (and spend time waiting), mega airports with luxury shopping venues — like in international airports in Hong Kong, Abu Dhabi, Copenhagen and Shanghai, among others — will still see sales.

Contactless retail experiences, which are modeled after mini malls, are popping up in American airports. By selling eyewear, electronics, shaving and skin care products, the firm, Hudson (one of the first companies to distribute PPE vending machines at airports last year) launched their first automated retail kiosks last month at Myrtle Beach International Airport in South Carolina, with plans to expand to Chicago and San Jose soon.

Either way, the outlook is becoming tech-dependent. According to Chaturvedi, retail stores will likely become ‘experience zones’ where customers can test out products with holographic technology (likely through 3D apps like Hypervsn), then offer same-day delivery. AI will predict customer needs and recommend products as well.

“Malls will have to embrace technology like never before, as traditional retail will be changed forever,” he said.

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