The death of the mall has been greatly exaggerated. The real story is in distinguishing between super regionals, which are flourishing, and regionals, which are losing ground.
Super regionals (malls with three or more full-line department stores) are large enough to remain a major force and tend to be well-located with access to established communities as well as growth areas. Their owners are major companies with the resources and experience to make adjustments, renovate and expand as needed and react to new trends.
Regionals (one or two full-line department stores), on the other hand, are generally a smaller, older format serving markets that have often become constrained by changing demographics close-in and new development elsewhere.
Our most recent publication, Dollars & Cents of Shopping Centers: 2004 highlights the differences between these two formats.
Renovations and expansions of super regionals are occurring at a fast clip, taking the place of the new construction of the 1980s. Super regionals are responding to remodeling needs, market saturation, changed shopper demand and increased competition from new formats, particularly centers that focus on lifestyle.
The various lifestyle components — open air, entertainment and public space — are generating interest among consumers. As a result, super regional shopping centers are opening up their malls, providing an indoor/outdoor mix, developing a Main Street segment and adding entertainment through restaurants, more public space and connections to the community
Almost 50 percent of super regional centers surveyed for the Dollars & Cents study were substantially renovated between 1997 and 2002. This is about double the proportion reported in the mid-1990s and more than in the late 1980s and early 1990s when about 40 percent of the super regional centers surveyed had been substantially renovated in the previous five years.
Almost 40 percent of super regionals surveyed were substantially expanded between 1997 and 2002, the highest rate in the past 15 years. Just over 20 percent were substantially renovated and expanded in the same period. This is more than double the proportion seen in the mid-1990s and it also exceeds the activity seen in the late 1980s and early 1990s.
In contrast, regionals surveyed for the Dollars & Cents study are expanding and renovating at a slower pace: 36 percent completed substantial renovations between 1997 and 2002, 25 percent expanded and 14 percent did both. The lower rates likely reflect the fact that some regional centers have closed or morphed into something else. They are too small, too dilapidated or too poorly located to justify reinvestment as a mall.
Key To Success
Community and neighborhood centers are already strong in certain lifestyle factors — accessibility and convenience. These tried-and-true formats have lower and more consistent rates of renovation and expansion. Rates reported in the 2004 study generally are in line with those of the past 15 years. Of the community centers, 21 percent renovated, 9 percent expanded, 4 percent renovated and expanded. Of the neighborhood centers, 14 percent renovated, 6 percent expanded and 2 percent renovated and expanded.
The incorporation of new formats into super regional centers appears to be having positive results at the cash register. Median sales at the super regionals surveyed have remained strong, inching slightly upward over the last several years with median sales of $280 per square foot of mall tenants (including anchors that are not full-line department stores) and $171 per square foot of full-line department store space.
Despite this relative stability among super regionals, sales per square foot in neighborhood centers (30,001 to 100,000 square feet of GLA) and community centers (100,001+ square feet) are also strong. In the neighborhood centers surveyed, median per square foot sales are $278 with the upper decile reaching $509. Community centers surveyed have median sales of $238 per square foot and the upper decile of $422. A cautionary note should be made that with lower tenant charges, these smaller formats are positioned to compete for mall tenants that can thrive elsewhere.
The super regional tenants with the highest sales per square foot in the study are smaller-size tenants selling jewelry, computer/software, fast food, sunglasses and watches with median sales mostly between $600 and $900. The highest end (top 2 percent) of most of these categories approaches or exceeds $2,000 per square foot.
The median sales of larger and most frequently found tenants in super regional centers — clothing, accessories, and shoes — range from the mid-$200s to the high $300s per square foot. Median sales of restaurants, both with and without liquor, are in the mid-$300s. The highest end (top 2 percent) of sales in most of these categories approaches or exceeds $1,000 per square foot.
Regional centers surveyed have not fared as well with median sales of mall tenants (including anchor tenants that are not full-line department stores) of $210 per square foot and $140 per square foot of full-line department stores. The regional tenants with the highest sales per square foot are, like super regional tenants, smaller tenants selling jewelry, computer/software, fast food, sunglasses and games but with median sales of between almost $400 and $725 per square foot.
The median sales of larger and most frequently found tenants in regionals — clothing and shoes — range from the low to the high $200s per square foot. Median sales of restaurants with liquor are in the mid-$300s while median sales of restaurants without liquor are in the mid-$200s. The highest end of sales in most of these categories approaches or exceeds $600 per square foot.
For now, the super regional centers surveyed for 2004 Dollars & Cents, clothing and accessories account for about 35 percent of all gross leasable area (excluding full-line department stores). Food service, entertainment/community-oriented tenants, hobby/special interest stores, gifts/specialty stores, and other (miscellaneous specialty) stores account for another 35 percent of all GLA. The largest remaining categories are home furnishings and home appliances/music which together account for almost 9 percent of all GLA. We expect to see a change in the overall tenant composition in super regional malls in the near future as lifestyle components continue to be introduced and expanded.
Director of retail development at the Urban Land Institute in Washington, D.C.
REGIONALS ON LOW END
The median sales of larger and most frequently found tenants in regional malls range from the low to the high $200s per square foot.
SUPERS ON HIGH END
The median sales of larger and most frequently found tenants in super regional malls range from the mid-$200s to the high $300s per square foot.