It’s a tale of two malls: With closings of large anchor stores on the horizon, some mall owners would welcome the opportunity to find more profitable tenants. Other mall owners, however, find the loss of anchor stores to be a challenge. Either way, the news that Sears has filed for bankruptcy has brought to light the difference between malls – and how their owners may view the loss of a large anchor tenant differently.
Some properties have trendy retailers and strong entertainment options, while other malls may rely on anchor stores for traffic and may find it harder to fill the space left behind when one closes. In the case of the former properties, mall owners may be able to trade rents for $4 per square foot for six times that amount. Corey Bialow, chief executive of Bialow Real Estate LLC, put it this way to The Wall Street Journal: “The top 50 mall owners in the country were dying to get Sears out of the mall, so they’re thrilled. Where it’s going to hurt most [is] at malls that are already struggling.”
Other malls, however, might already face the prospect of vacant space from other retailers, and might already have seen the departure of a large anchor tenant. One mall located outside of Chicago, for instance, lost a Carson’s store and also has a Sears. Its owner told WSJ that it is seeking options for the space Carson’s left behind, but did not comment on Sears. Marx Realty and Benenson Capital, the owners of the Cross County Shopping Center in New York, however, told the paper that they are not concerned about the loss of Sears.
Sears has occupied a 250,000-square-foot building in the Cross County Mall for roughly four decades. Marx Realty Chief Executive Officer Craig Deitelzweig told WSJ, “We aren’t worried about whether the space can be backfilled. We can accommodate not just Sears, but any other tenant that may go under.” Why? The mall has brought in new restaurants, such as Jamba Juice and Shake Shack, and has engaged the community through events like a Fourth of July fireworks show.
Even so, the question remains: With anchor stores like Sears and JCPenney closing more doors than they’re opening, what tenants may be a good fit for a large space in a shopping mall?
New Uses for Mall Space
For a growing number of mall owners, the answer is to diversify and fill those gaping department store holes with something completely different: apartments and hotels. It was a key theme at the International Council of Shopping Centers’ annual RECon convention in Las Vegas in May, reported CNBC.
At the event, some landlords announced new deals for residential uses, while retailers and real estate owners in general seemed to be collaborating more closely to keep shopping centers alive. “You don’t have to fill retail with retail anymore,” remarked Greg Maloney, head of JLL’s America retail business, at the event. Mixed use is the new wave, and anything is fair game — there’s no such thing as a cookie-cutter solution anymore.
Simon, the major U.S. mall owner, plans to open at least five Marriott International hotels at its properties in the coming years. PREIT, a smaller Northeast competitor, wants to add thousands of residential and hotel units across a dozen properties. Other mall owners are incorporating fitness operators, spa service providers and entertainment options, noting that “experience” doesn’t have to mean just food — although remodeling outdated food courts does remain a priority for many.
Another use for those spaces left vacant by retailers? Co-working sites might just be the perfect space filler for the waning mall (and other retail) spaces. This use case is predicted to grow at retail properties at a rate of 25 percent through 2023, according to a new report from real estate data firm Jones Lang LaSalle (JLL). Those shared office spaces, according to the same report, are expected to account for roughly 3.4 million square feet of retail space in the next five years.
It is an arrangement that works for workers and business owners like Adam Pittenger, founder and CEO of Moved. Pittenger told CNBC that by working out of WeWork’s Fulton Center, he was able to grow his business from one employee to more than a dozen. “There are intense benefits to the density of being in a space that is both commercial retail and close to residential,” he noted. “Living in the era of ‘on demand,’ we all want things now.”
After all, real estate is about location, location, location – and malls in prime areas may weather the loss of large anchor tenants like Sears and JCPenney better than others.
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