The Great Mall Migration: Second Act Or Curtain Call?

Malls are not exactly the healthiest of shopping species in the U.S.

Much has been written about rising vacancy rates and the changing consumer shopping patterns which doesn’t drive consumers to the malls the way they once did. At 8 percent, mall vacancies through 2014 were below their 2011 high of 9.4 percent, but a slight uptick from Q3’s 7.9 percent and a tick up from the sub-6 percent rates before the financial crisis.  

But even more telling, is simply the lack of expansion. A new enclosed mall hasn’t opened in the U.S. since 2006. Developers are being more cautious.

“The one key here is that new supply has not been abundant. We have about 6.5 billion square feet of retail in this country, and we used to build an average of 2.5 percent to 3 percent of that a year. We’ve been averaging only 0.3 percent over the past three years,” shopping mall developer O’Connor Chairman and Chief Executive Glenn Rufrano recently told The Wall Street Journal.

However, while the U.S. shopping mall is certainly set to undergo its own retail renovation, the concept of the mall itself is still flourishing.

It’s just not flourishing in the United States.

Around the world, however, is a different story as consumers in wildly different places like Iran and China are building malls at an astonishing rate, and modifying their shopping habits for these new centers of commerce.

While adoption rates look good and early interest is high, some, though, are wondering if the international expansion of malls represents a second chance at life for the megashopping center, or just a temporary stay of execution.


Building malls is a booming business in China these days. Of the 10 cities worldwide that created the most shopping-mall space in 2013,  nine were in China. Additionally, as of fall 2014, about half of the mall space under construction right now in the world is happening in Chinese cities.

Chengdau, home to 15 million people and the capital of the southwestern Sichuan province, is “ground zero” for the Chinese mall boom. One million square meters of mall space (~3.2 million square feet) opened for business at the New Century Global Center last year and a 300 store/mixed-use living/shopping complex at Chengdu International Finance Square did, too.  Another mega complex like this is currently under construction.

Meanwhile, across China, 800 mixed-use complexes—containing hotels, offices and retail—totaling 300 million square meters (~900 million square feet) are planned for execution by developers. To put that in some context, that’s roughly on par with building the Mall of America a thousand times over.

Not surprisingly, malls have attracted both the hearts and the checkbooks of investors. Chinese shopping mall developer Dalian Wanda Commercial Properties capped off 2014 with a record-breaking trading $3.7 billion IPO in Hong Kong.

Controlled by Chinese billionaire Wang Jianlin, the company is one of the world’s largest developers of shopping malls.

“Today is a historic day for Wanda and also an important milestone for the business development of Wanda,” said Wang before opening the exchange on the day of his firm’s debut.

In recent days, Andrew and Peggy Cherng purchased a 4.9-percent stake in Golden Eagle Retail Group – a Hong Kong-listed mall operator in China. The Chinese-American billionaire Cherngs own the Panda restaurant chain.

“To the best knowledge of the Board, the Panda Group is interested, through its investments in the Company as a platform, to learn more about the China market,” Golden Eagle said, reports Forbes.

With good reason – with American shopping malls shrinking,  Panda Express – the ubiquitous feature of every mall’s food court needs a new venue in which to thrive.  Whether they can sell Americanized Chinese food to Chinese consumers is another matter, entirely.  


Three thousand miles away from the heart of China’s mega-mall based retail boom, a similar and yet quite distinct boom is going on in a very different city. Tehran, Iran’s capital currently has 65 new malls under construction in its general metro area, according to recent reporting by The New York Times.

Many of these malls are marked by their extravagance, and are clearly meant to cater to the very small minority of the wealthy and extremely wealthy in Iranian society.  For instance, the newest addition to the Tehranian shopping scene, The Palladium, exists in Iran’s pricey Zaferanieh neighborhood, and reportedly attracts a line of new Mercedes and Porsches to its multistory parking lot.

“We cater to what people desire to do: spending money, buying stuff and enjoying themselves as they shop,” said the owner of the Palladium, Hassan Raftari. Raftari is described by The New York Times as “scion of a family famous for its kebab restaurants” and described by himself as “a shopaholic.” He represents an ideological change in the Iranian consumer, that once viewed conspicuous consumption as a Western failing to be strenuously avoided.

Raftari however, was an international traveler, and inclined to return home wondering why his shopping experiences weren’t more immersive and inclusive.

“So I decided to build my own shopping center,” he said. “We have 1,000 parking spaces and my only mistake has been that I haven’t built more.”

Raftari stressed to The Times that his mall is 100 percent privately owned. If true, that makes it unique in Iran, where mall development has been spurred on by those most enriched by recent years’ booming oil prices, looking for a place to invest.

“Under sanctions, with nowhere else to invest, building shopping malls is the only lucrative business in Iran,” said Jamshid Edalatian, an economist. “The Guards, the police and other institutions are the ones who have money, so it is logical for them to invest in what makes a profit.”

And while many of these shopping centers are projected as lavish luxury centers, with penthouse gyms among other amenities, not all of the recent mall development in Iran’s capital city have been aimed at the rich. Three of the malls under development are in one of the city’s poorer areas around the bus station – another two in a developing neighborhood around the airport.

“It is just such a pleasant experience,” shopper Fatemeh Gholipour told The NY Times. “They have everything under one roof. It is just like the malls I have seen in Dubai and Turkey. I feel modern shopping here.”

A Backward Looking Boom?

For all the enthusiasm for mall-based commerce from Chengdu to Tehran, there are also perhaps reasons for concern. U.S. malls were doing great – until one day they weren’t, and there were too many of them and far too many more being built, given the total economic context they were being constructed in.

While Chinese developers are building more malls, retailers in the nation are contracting their expansion plans, according to The Wall Street Journal. Among luxury retailers, 65 percent  opened fewer new stores than they forecasted in China in 2014, not an astonishing fact in the face of sluggish retail sales growth nationwide.

In April 2014, retail sales in China were up 12 percent from April 2013, compared to 2011 when sales were up 17 percent. Mobile commerce is also pulling customers away – most in the form of  the massively successful Taobao site run by Alibaba.

“If the shopping malls don’t get filled and well-operated after opening, they become bloodsuckers for the owners, easily millions of dollars a month,” said Alan Sun, a national director and head of landlord project services at Knight Frank. “The government hasn’t realized that vacancy problems will be severe once all those projects are built.”

In Iran, the situation may be somewhat more severe, since the mall development has been termed “backward looking.” They were planned and developed when (some in) Iran were flush with cash from surging oil prices – in fact that surge was part of the reason for their creation, the newly flush with cash needed a place to invest.

Now the situation in Iran is quite different – oil prices are low, the Treasury is empty, and Western sanctions still yoke the economy fairly hard.

However, the westernized shopping mall also offers Iran an interesting revenue path. The bazaars – the traditional open air market centers of commerce – are famously cashbased and hard to tax or control. Mall-based commerce on the other hand is more centralized, and almost universally yields merchants paying the 8-percent sales tax.

How long will the international boom in shopping malls last? It likely depends. Many of these shopping centers are still being built – and so it remain to be seen if developers construct them, will shoppers really come? Early indications say yes, but many economic indicators have changed since those holes in the ground were first dug.

Malls could be seeing their second act in new market, but at the point it seems equally possible they are also just enjoying their last curtain call.



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