Malls Challenge eCommerce Era With Costly Upgrades

With the vast number of bankruptcy filings and department store closure announcements over the past year, it’s safe to say the retail industry has taken a hit in the digital age. As the retail revolution continues to undergo its transition in today’s eCommerce-driven era, shopping malls are getting the brunt of the financial impact.

Big box retailers like Macy’s and Sears are closing at various locations, and mall owners are filling their voids with expensive upgrades. To help draw consumers back into shopping malls, many owners are undertaking $500,000 food court upgrades, and building out mini-golf courses, rock-climbing gyms and other experience-focused facilities.

eCommerce’s impact on the way people shop will likely continue to impact large-scale retail establishments. Research firm Green Street Advisors shared that investors aren’t thinking about the rising costs of maintenance on sprawling buildings like shopping malls, and vacancy rates for malls rose from 7.9 percent to 8.1 percent within the past three months. There were 4,000 store closures in 2016, and brokerage company Cushman & Wakefield is projecting an additional 13,000 will shut their doors in 2018.

One of the largest mall owners in the U.S., Simon Malls, shared that its redevelopment rate stemming from net operating income rose from 3.5 percent in 2010 to 16.6 percent in 2015, then saw a decline to 7.6 percent in 2016. The balancing act of filling vacant spaces in large shopping malls while maintaining foot traffic is likely to be an ongoing battle for the next few years.

David Simon, Simon Mall’s CEO, commented on how his company is changing its retail landscape to help change with the times.

“We spent a lot of capital in the portfolio to upgrade the look and feel,” Simon said. “We’re going to continue to do that. I think the returns will be there, and I don’t think the dynamics of today’s current environment have changed that.”


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