Strip Malls Gaining An Edge Over Traditional Shopping Malls

Open-air shopping centers – also called strip malls or strip centers – are replacing malls as retail juggernauts, offering necessities like grocery stores, hair salons and dentists, The Wall Street Journal reported on Tuesday (Jan.14).

Predating malls, the outdoor centers offer merchandise and services that keep people coming back several times a week.

“Retailers want their stores in the line of sight when people are dropping the kids off, or going to the gym,” said Brian Harper, chief executive officer of New York-based RPT Realty, which owns 48 open-air or grocery-anchored shopping centers in 13 states.

Strip shopping centers are usually smaller than malls, and appeal to stores seeking more visibility.

Even merchants with significant online sales often seek a brick-and-mortar presence to counteract rising delivery costs. For example, both Walmart and Target have introduced curbside pickup service.

“The initial gut reaction is that it’s all going online, but sometimes, it’s cheaper to use the store as a distribution channel,” Conor Flynn, chief executive officer at Kimco Realty Corp, told the WSJ. The Jericho, New York company owns and operates open-air shopping centers.

The vacancy rate at strip malls reached 10.2 percent at the end of the fourth quarter of 2019. Enclosed malls had a vacancy rate of 9.7 percent during the same period, the highest rate in two decades, according to REIS Moody’s Analytics.

“If vacancies continue to rise, they should not do so at a rapid rate,” Barbara Denham, senior economist at REIS, told the news outlet. She said consumers are increasingly spending on fitness, entertainment and eating out.

Institutional investors are putting money into strip malls, with the Singapore sovereign-wealth fund GIC backing five open-air centers in Florida, Missouri and Michigan with $118.3 million for a 48.5 percent stake.

U.S. shopping malls have long been suffering, with empty shops hitting a 20-year high. There were more vacant stores at the end of last year than at any time during the past two recessions, according to REIS.

Data from Coresight shows that more than 9,300 stores shuttered in 2019, the most since 2012, the first year the information was tracked.