In August, the Mall of America turned 10 years old. A decade ago, its massive size — 4.6 million sq. ft. — and fun-house format shocked the mall industry. Now, entertainment features such as in-mall amusement parks are no longer novelties, and giant, super-regional malls of 1 million sq. ft. or more have been developed in major markets across the country.

Compared with other mall formats, the super-regionals are prospering. That's partly because of their size — they're so powerful in their trading areas that they're sometimes referred to as “fortress” malls. But it's also because the behemoths are adapting to changing market conditions. They're adding new, open-air lifestyle areas and retenanting to bring in the big-box discounters that consumers now favor.

The Mall of America is undergoing just such a metamorphosis. Next year, owners Simon Property Group, Teachers Insurance and Annuity and Triple Five will begin a second-phase expansion, filling a 42-acre parcel that's zoned for up to 5.7 million sq. ft., just north of the mall. While the project is still in the planning phase, “What we want to do is to create a lifestyle center to complement the greatest retail and entertainment complex in the country,” says Arthur Spellmeyer, Simon's senior vice president of development.

On the drawing boards

What's good for Mall of America is good for America's other super-regionals. Or so it would seem. Super-regional malls, both new and redeveloped, are tacking lifestyle components on and changing the tenant mix. It's a simple plan: Both moves are aimed at bringing in more shoppers and encouraging them to spend more time (and money) with the retailers there. By mixing national apparel chains, bookstores and houseware emporiums with big-box retailers, sit-down restaurants and movie theaters, developers hope to get the browsers who always favored super-regionals and the so-called destination shoppers — consumers who shop for a specific item (increasingly at discount stores).

The open-air lifestyle format is particularly promising as a way to bring in the non-browsers and give the shopaholics another reason to spend more time at the mall. In an urban-like environment in which a movie theater sits among storefronts, for example, shopping opportunities arise between a ticket purchase, dinner and the coming attractions.

Owners and developers of super-regionals are responding to two trends — one positive and another negative. The good news: According to the International Council of Shopping Center's latest survey, Mall Shopping Patterns, the average shopper makes 41.6 trips to the mall annually, and spends 78.1 minutes there per trip. The average shopper spent $78 per visit. When the ICSC first began collecting data on malls in 1995, shoppers were making 39 trips lasting 76 minutes each and spending $59.25 on merchandise (adjusted for inflation).

The bad news is who is doing the shopping and where. In 1995, the ICSC found that 42% of survey respondents were browsers. In the most recent data, that figure has plummeted to 23%. As fewer people consider themselves browsers, super-regional malls are being confronted by a growing number of consumers who “buy” rather than “shop.” It's the shoppers who have made super-regionals so successful, because they wind up spending more than those focused buyers who actually stick to their shopping list.

For now, super-regional malls have not felt the effects of the change in consumer behavior. According to real estate data and consulting firm Reis Inc., in the fourth quarter of 2001, super-regionals experienced less vacancy than regional malls — 6.6% versus 8.2% — and commanded higher rents. The average non-anchor rent per sq. ft. at year-end 2001 was $38.46 for a super-regional mall and $31.29 for a regional property.

But rents have trended down for both mall types since 2001, Reis reports. A combined average shows non-anchor rents declined 2.6% in the first quarter of 2002, and another 1.7% in the second quarter.

Craig Schmidt, a Merrill Lynch vice president of equity research who covers shopping center real estate investment trusts (REITs), figures that sales per square foot at the super-regionals are keeping pace with inflation. In the last year, stock prices for the biggest REITs that operate super-regionals have performed well: In the year ending September 10, Simon Property Group has seen its average stock price rise from $25 to $35, General Growth Properties has enjoyed an increase from $35 to $50, and The Rouse Co. a $24 to $32 price pop.

“You want more of the super-regionals in your portfolio than otherwise,” Schmidt says.

As long as they can keep the crowds coming, that is. Urban Land Institute senior fellow Michael Beyard says that up to now, the success of super-regionals has been a function of size, not innovation. “They're able to command attention, even if their formats are out of date, by the sheer volume of stores,” he says. “And the super-regionals have stores that may not be in the regionals. Some of the new, most desirable tenants are only going to locate in a few places, because of demographics.” Super-regional malls typically serve those markets, and offer prospective tenants the critical mass of fellow retailers that are already attracting the target consumers.

Now, however, the limits to the size strategy are becoming apparent.

“There's a shortage of credit tenants in the marketplace,” Beyard says. “To get financed, the shopping center developers have to put in a large percentage of them.” That means that the same national chains are showing up in all new venues, erasing differentiation between centers and between malls and downtowns.That is a particular problem for the super-regionals, which can't afford to turn off their cherished browsers.

One solution is to add new types of credit tenants at the same time they modify their formats to mimic lifestyle centers. Increasingly, they are bringing in the kind of category killers usually found in freestanding locations or in power centers, such as Barnes & Noble and Old Navy. Greg Karlen, president of Madison Marquette Realty Services, calls these big boxes “Very instrumental to living.” Dining out after hours, or searching for every book or tech gadget known to mankind are different phases in the consumption life cycle that previously did not happen at the mall.

Building on that formula, Tom Schneider, senior vice president of new development at Simon Property Group, says that Simon has begun incorporating supermarkets into its super-regional formula. Bowie Town Center, located in Bowie, Md., includes a Safeway, for example.”There are some grocery stores that bring shoppers week after week after week,” or they'll go to the mall, and run to the grocery store before going home,” says Schneider.

John Bucksbaum, CEO of General Growth Properties, also likes the idea of grocers in the mix. “You know these other tenants are going to be in the market — you'd rather have them on your property if you can do it.”

Norman Rockwell's mega-mall

From a design viewpoint, the changes taking place in the super-regionals are a return to the days before enclosed malls dominated the shopping center business. It's like “going back to our youth,” says Nelson Brackin, a senior architect with Thompson Ventulett Stainback & Associates in Atlanta. “Streetfront retailing represents that richness of American life that the outdoor experience has and that the indoor mall has tried to emulate or resonate, but it's always been indoors and has a certain lack of realism to it.”

Among Brackin's projects is the forthcoming Short Pump Town Center in Richmond, Va., an almost completely open-air mall development by Forest City Enterprises and local developer Thomas E. Pruitt and including approximately 1.1 million sq. ft. of retail space.

When super-regional malls go out-of-doors, they also attempt to create a sense of place by reflecting regional tastes in architecture and lifestyle. Westcor's Flatiron Crossing, one of the first super-regionals to add a lifestyle component, is located between Denver and Boulder and plays off the locals' love of the outdoors. Stan Laegreid, principal of Flatiron architect Callison Architecture, points out that there is no department store plopped in the middle of the center court, which would is standard layout in most centers. Instead, “You look in the center court out to the north and the east, you're basically looking at the prairie.”

How far will lifestyle go?

The super-regionals' embrace of lifestyle formats has the makings of a trend. And like all trends in retail real estate, it is in danger of going too far. Jim Ryan, president of architecture firm JPRA in Farmington Hills, Mich., points out that open-air shopping centers are popping up throughout the Midwest, even though the weather makes browsing outdoors an unattractive option for many months of the year. “Trends become non-trends when they become overdone, and nobody knows why they're doing them,” he says.

If anything, lifestyle's mixed tenanting and outdoor-oriented design is an attempt to mimic a traditional downtown. As Therese Byrne, founder of Pantheon Capital Management, puts it, the idealized conclusion of this trend is “organic, it's like a city. How do you know what a city looks like at the end of the day? You don't. You have to figure out what teens want, you have to figure out what Boomer women want.”

Today's typical lifestyle-oriented mall can be seen in hybrid projects like Triangle Town Center, which the Richard E. Jacobs Group opened in Raleigh, N.C., in August. The 1.3 million-sq.-ft. shopping center is divided into five different “zones”, including a collection of outdoor shops and restaurants called Triangle Town Commons. “The idea was to create a new destination,” says Bill Fullington, vice president of marketing for Jacobs Group.

New mega-malls like Triangle Town Center have come a long way since architect Victor Gruen brought the first mall creations online five decades ago. In turning the mall inside out as well as embracing tenants who were previously found in power centers or on freestanding sites, lifestyle-oriented super-regionals represent the greatest evolutionary leap so far.

As developers grab onto the lifestyle trend and push it even further toward mixed-use and other innovations, they are reaching across an array of urban designs and retailing products that better match a consumer's many moods, and they're changing the meaning of the term “mall.”